Free calculator / No account required
Forward buying and quantity discount calculator
Should you buy extra stock before a supplier price increase, or to reach a quantity discount or freight-prepaid threshold? Enter the line’s normal purchases and the offer to see the annual return on the extra inventory investment after carrying cost. Compare it with the return your business requires before tying up the cash.
Return on each extra month
| Extra month | Return on added investment |
|---|---|
| 1 | 49.8% |
| 2 | 29.8% |
- Break-even total months of stock
- 11.7
- Annual gross savings on 2 extra months
- $2,000.00
- Annual net savings after carrying cost
- $1,590.00
Each extra month's stock earns the price advance only on that month's purchases, and the money is tied up longer with each added month, so the return falls as you buy further ahead. As an illustrative calculation, months whose return clears your hurdle may be candidates for review; confirm the supplier's actual terms, normal order scope and your assumptions before deciding. Past the break-even point the carrying cost eats the whole saving.
This return assumes no item runs out before the extra stock is used up. When a staple does, you fill in at the normal price and part of the saving disappears. The workbench computes that probability from your usage history and reports the return on the final added investment.
How to read the result
Return on added investment is an annual rate earned on the extra money tied up in stock, after direct carrying cost. It is not a margin and not a saving on the whole order. A month whose return falls below your hurdle rate costs more to hold than it saves, measured against your other uses of the cash.
- Normal monthly purchases (A)
- What the line normally buys in a month, at cost
- Order cycle (R)
- 1 if you order monthly, 3 if quarterly
- Extra months (E)
- Stock bought beyond the normal order
- Carrying cost (I)
- Interest, insurance, inventory tax, handling and obsolescence; default 10.25%
A price increase saves money only on the extra months, so each additional month earns less. A quantity discount applies to the whole order, including the normal month, so it usually earns more for the same percentage. Neither result includes items that run out early and are refilled at the normal price.
Worked examples: buying ahead of a price increase and quantity discounts and freight thresholds. To test a real vendor line with item quantities and fill-in risk, open the free workbench.