We have changed our privacy policy. In addition, we use cookies on our website for various purposes. By continuing on our website, you consent to our use of cookies. You can learn about our practices by reading our privacy policy.


Split Block Pricing

You know how you buy a bulk pack of 200 cans of Peach Citrus Fresca for $100, but the individual cans say "not for individual sale?" Those labels are meant to prevent split block pricing.

The term itself refers to what happens when you break a larger order into smaller ones. Instead of getting a single price for the whole lot, smaller chunks get individually priced to particular buyers.

So...with that Fresca (and ignoring the label), you sell 25 cans to your cousin for $1 a can. Then you sell 50 to your friend Merrill for $0.75 a can. Another 125 goes to Fat Eddy for his annual family picnic; he paid $0.90 a can.

The price per can isn't stable across the whole supply. It varies from sale to sale. It's relatively easy to figure out though. ($1 x 25) + ($0.75 x 50) + ($0.90 x 125) = $175, which is the total amount earned by selling all the cans. Now, divide that by 200, and you get a per-can price of $0.875.

Related or Semi-related Video

Finance: What does it mean to "scale"?60 Views

00:00

Finance allah shmoop What does it mean to scale Well

00:07

here's a squid eyeball from space fifty miles away and

00:11

here's a squid eyeball from our boat the pesca squid

00:14

alia's from a mile away and here's a squid eyeball

00:18

from the view of our iphone we just dropped in

00:21

the water when the squids when right beneath the boat

00:25

scaring the crap out of us literally at one scale

00:28

we could barely see the ocean At another scale We

00:32

saw way too much eye ball scale and business has

00:36

the same kind of dramatic effect as operations come into

00:39

play That is it's One thing to serve lemonade drinks

00:42

to one hundred people a week It takes one stand

00:45

a permit grocery store visits worth of supplies it's completely

00:49

Another thing Toe serve a million drinks a week for

00:53

the latter You need infrastructure trucks storage and armies of

00:58

servers to you know serve Yeah that's what they do

01:02

someone's gotta get lemonades to the people So when a

01:04

company scales it means that they have gone from a

01:07

modest few million dollars of sales to sales of maybe

01:10

one hundred million and then a billion Some like that

01:13

The skill set for the former is a vastly different

01:16

set than for the ladder and some people are able

01:19

to do both Howard schultz founder and ceo of starbucks

01:23

We're looking at you well starbucks started off is just

01:26

one store in seattle in like five minutes later there

01:29

were a gazillion of them all over the world thinking

01:31

of coffee in any language So yeah that's How a

01:34

company scales from you little toe Big big Incidentally you'll

01:38

want to stay off the scale if you consume venti

01:41

caramel frappe with whip on a daily basis but on 00:01:44.897 --> [endTime] there so good

Find other enlightening terms in Shmoop Finance Genius Bar(f)