How does buying in bulk often cheapen the final price?
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The effect is called Economy of Scale and there are benefits all along the supply chain.
First, larger production runs make specialized tools and automation more cost effective. If you pay $100 for something that saves you $1 per item then you need to sell at least 100 items to merely break even.
Second, shipping one big package is easier than shipping 100 small packages even if the weight is the same. Up to a point it’s faster to put all 100 items into a single cardboard box and carry them all at once rather than pick up and move each individually wrapped package.
There’s also a minor benefit of organization. Having less buyers means there’s less paperwork to keep track of.
Now scale this up to every level of production from harvesting the raw materials to your purchase being boxed and shipped to your door and honestly we’re doing businesses a favor when we order in bulk.
I’m willing to buy 10 widgets. Will you give me a discount?
“Haha, no, buy them or don’t.”
I’m willing to buy 100 widgets. Will you give me a discount?
“Well…maybe I can work out 10% off.”
I’m willing to buy 100,000,000 widgets. Will you give me a discount?
“Holy fuck yes, I’ll give you 80% off, let’s do this so I can go buy a vacation house!”
A couple reasons why it’s advantageous… it creates revenue/sales certainty (I’d rather sell 10 of an item at a slightly lower rate than sell 1-2 of them and still have 8 I need to sell); the cost to acquire a customer (paying for ads and such) is about the same whether they buy 1 or 10, so I can basically comp them the cost for me to sell items 2-9 since I no longer have to find 9 additional customers to buy those. There are more efficiencies in packing, shipping, etc. a single larger order vs. many smaller orders and in packing/transporting larger volume packages (eg. a 100-pill bottle at a drug store vs. a 500-pill jug of pills at Costco).
A semantic correction maybe, but an important one.
Buying in bulk rarely, if ever cheapens the final price. But it does often lower the per unit cost.
And that is mostly just because there are fixed costs and variable costs. The fixed costs are usually set per order, the variable costs are usually set per unit.
So if your fixed costs are $100, and your variable costs are $10. Then your final price for 1 unit is $110. ($110/unit). But if you order 100 units your final price is $1100 ($11/unit).
As you can see, buying 100 units is much much cheaper per unit than buying 1.
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