Reference
Who should approve a discount?
A discount approval process sets who can approve a concession, within what limits, and for how long. Set limits from your own margins, contract terms and risk. Record the reason, value, owner and expiry for every approval.
What counts as a concession
A discount is only one way to reduce the price a customer pays. Include rebates, credits, free goods or services, waived freight, extended payment terms, promotional allowances and delayed increases.
Some concessions sit outside the invoice. A price waterfall can make these visible alongside invoice discounts. McKinsey's description of the pocket price waterfall includes prompt-payment discounts, receivables cost, allowances, rebates and freight.
Estimate each concession's value over its full term. For payment terms, include the financing and collection effect where you can measure it. Keep the calculation method consistent across requests.
Set authority before a request arrives
Choose approval limits that fit your business. A percentage alone can hide the dollar exposure, so set limits using both value and effect on contribution where possible.
The table is an example of roles and escalation logic. It contains no recommended discount percentages or dollar thresholds. Replace each limit with a documented company limit before use.
| Request | Suggested decision owner | Approval condition |
|---|---|---|
| Standard term already in an approved offer | Salesperson or account owner | Within the written offer, customer eligibility and expiry |
| One-off concession within a local cap | Sales manager | Within the approved value and contribution limits; recorded reason and end date |
| Concession above a local cap or repeated exception | Commercial or pricing lead | Review total account exposure, precedent and expected return |
| Rebate, credit or non-price term with uncertain value | Finance, with the commercial owner | Agree the valuation method and total expected cost before approval |
| Below-floor price, permanent exception, broad waiver or material contract change | Executive approver and relevant control owner | Written rationale, margin impact and contract review |
The business should name people for each role and set monetary and contribution limits. Route an approval upward when the request exceeds either limit. Do not split one request into smaller pieces to avoid a limit.
Review the whole offer
Compare the request with the customer's existing realised price. Separate existing discounts from concessions offered to secure the increase. Otherwise, a long-standing discount can be mistaken for new price giveback.
Ask what the business receives in return. A larger committed volume, longer term or reduced service requirement may have value, but only if the business can verify it. Put the commitment and the consequence of missing it in the approval record.
Check the total account effect. Include other products, open quotes, rebates earned later, credit notes, freight and payment terms. A concession that looks small on one invoice can be large across a year.
Put an end date on the approval
Every exception needs a start date, an expiry date and an owner. State whether the price returns to the approved schedule after expiry, subject to the contract and customer notice process.
Review recurring concessions before renewal. If a temporary exception becomes standard practice, update the price record and authority rules. Check the facts before describing an ongoing price as a temporary discount. The ACCC's business guidance explains that price and discount claims must not mislead customers.
Approval record
Record enough to reconstruct the decision later. The blank concession approval template captures the request and approval fields. The CSV is blank and has no formulas. Calculate the concession value in your own spreadsheet.
The template includes:
- Customer or segment, Product or service and Planned effective date.
- Planned increase percent, Concession type and Concession against increase percent.
- Cash value, Margin floor, Approval reason and Customer commitment.
- Approver role, Start date, Expiry date, Review owner and Decision reference.
Keep supporting price and contribution calculations with the approval. Include the current realised price, existing discounts, expected realised price, affected volume and calculation method. Store contract, finance, tax or legal reviews where your process requires them.
Save the approved terms where sales and finance can find them. Compare actual credits, rebates and payment behaviour with the approved amount after the period ends.
Limits
This matrix is an illustrative starting point. Each business must set its own authority, financial limits and escalation rules. Contract and legal requirements vary by situation and jurisdiction. Get appropriate advice before changing agreed terms or making public price claims.
Related material
Responsibility and method
Responsible author: Andrew Wilson. Publisher: onestepright.
Substantive update: . The approval example is illustrative. The article states its assumptions.