Pocket price

The pocket price is the list price minus discounts, rebates, promotions, free freight, and similar offers. The contribution margin of a sale transaction can be determined by subtracting the cost of goods sold from the pocket price. For example, a business sells a product that has a list price of $100. There are associated discounts and rebates totaling $20, so the pocket price is $80. The cost of goods sold is $50. This means that the contribution margin is $30.

A variation on the pocket price concept is the pricing waterfall, which begins with the list price and then individually subtracts every possible deduction allowed to a customer, to arrive at the pocket price. This visual presentation is useful for understanding the size and scope of the discounts being granted to customers.

Related Courses

Revenue Management 
Revenue Recognition