Set one minimum margin for the company and define it clearly (markup on cost or gross margin). Price each quantity tier as unit cost × (1 + tier margin), give larger tiers lower margins only for real savings, and keep every tier at or above the floor. A tier below the minimum should need a written reason and a manager's approval before the quotation goes out.
What is a minimum margin, and why set one?
A minimum margin is the lowest margin your company will accept on a quotation without a specific reason and a manager's approval. It is a floor, not a target. Most quotations should sit well above it.
Without a floor, every salesperson and every approver makes their own call, usually under time pressure. With one, a thin price stops being a judgement made in a chat and becomes a visible exception that someone signs off.
Is margin the same as markup?
Not quite, and mixing them up is a common source of thin quotations. Markup on cost is selling price ÷ unit cost − 1. Gross margin is profit ÷ selling price. The same price gives a lower percentage as a gross margin. Illustrative figures on a unit cost of RM 6.45 (Malaysian ringgit):
| Markup on cost | Selling price on RM 6.45 cost | Gross margin on price |
|---|---|---|
| 8% | RM 6.97 | 7.4% |
| 10% | RM 7.10 | 9.1% |
| 15% | RM 7.42 | 13.0% |
| 25% | RM 8.06 | 20.0% |
A 10% gross margin needs an 11.1% markup. Decide which measure your company uses, write it down, and use the same one for the floor and for every tier. In this guide, "margin" means markup on cost, which is also how Avantix Costing calculates tier prices.
How do volume tiers work on a quotation?
Instead of one price, the quotation shows a price per quantity band. Larger orders usually get a lower price, because set-up time, changeovers and administration are spread over more pieces. Each tier's price is the unit cost × (1 + tier margin).
A worked example for a 20 litre paint pail with a unit cost of RM 6.45 and a company minimum margin of 10%. All figures are illustrative sample figures.
| Quantity tier | Tier margin | Selling price per piece | Margin after resin rise (cost RM 7.07) |
|---|---|---|---|
| 1 to 1,000 pcs | 25% | RM 8.06 | 14.0% |
| 1,001 to 5,000 pcs | 15% | RM 7.42 | 5.0% (below minimum) |
| 5,001 to 20,000 pcs | 8% (below minimum) | RM 6.97 | −1.4% (loss) |
Read the second and third columns first. The 8% tier was already below the 10% floor when it was quoted. Then read the last column: after a polypropylene (PP) resin rise of RM 0.65 per kg on 0.95 kg per piece, the unit cost becomes RM 7.07. The middle tier falls to 5.0% and the largest tier sells at a loss. The bigger the order, the bigger the damage.
How do you choose tier boundaries and margins?
- Match how the customer orders. If they call off 2,000 pieces a month, a tier break at 1,000 matters more than one at 50,000.
- Make tiers continuous. No gaps and no overlaps: every quantity should fall in exactly one tier, and each tier's maximum should be at least its minimum.
- Step the margin down for a reason. The discount at volume should come from real savings, such as fewer changeovers per piece, not just from wanting the order.
- Keep the largest tier above the floor. It carries the most pieces, so it carries the most risk when costs move.
- Put a validity date on the quotation. The longer a tier price is open, the longer it is exposed to material price changes.
What should happen when a tier falls below the minimum?
There are three honest options: raise the tier's margin to the floor, remove the tier, or keep it and get it approved with a written reason, such as a strategic customer or a trial order. What should never happen is a below-floor tier reaching the customer without anyone noticing. Make the exception visible to the person pricing and to the person approving, and keep the reason with the quotation.
How does Avantix Costing handle minimum margin and tiers?
Avantix Costing, made by Avantix Innovation Sdn. Bhd. in Penang, builds the unit cost from seven cost groups (see how to calculate product unit cost) and then prices the tiers:
- Each quotation can have several quantity tiers, each with its own margin. The selling price is unit cost × (1 + margin %).
- Tiers are checked so that the maximum is not below the minimum and tiers do not overlap, and they are sorted by quantity.
- The minimum margin is set once by the administrator. Any tier below it is highlighted in red, both in the costing sheet and in the live cost bar at the bottom of the editor.
- The manager approves from a queue that shows the full cost summary, the tiers and a below-minimum-margin warning. Approving or rejecting requires remarks.
- When purchasing enters a new material price, a what-if preview shows each affected open quotation's lowest margin before the price is saved. The Avantix Procurement Portal covers the purchasing side, with purchase request approval.
See all features, how the flow works or the Avantix Costing product page on the Avantix Innovation website.