What is Net Price?

Definition: Net price is the total price charge for a good or service, after considering any added or subtracted amount. It is the price effectively asked to the customer once taxes, deductions or discounts are included in the amount.

What Does Net Price Mean?

The net price is what the customer effectively pays for a product or service. There is a list price or manufacturer’s suggested retail price (MRSP), which is a kind of baseline price. However, many times the seller has to apply taxes imposed by law such as the Value Added Tax.

Other additions can be shipping or installation charges if the customer has to pay this service in addition to the list price. Subtractions can be special discounts or rebates offered by the seller as special promotions. In other cases the seller decides to reduce the list price with the aim of closing a very attractive deal. For example, a customer’s proposal of buying several items in a single purchase if the unit price is lowered.

Example

In an African country, an American tourist woman and her daughter visited a nice store where traditional African dresses were displayed. The store was located in high-traffic avenue, so many travelers entered the place every day. The woman was trying several colorful dresses and showing high excitement about the products. She finally picked up two pieces for herself, one for the girl and another one for a gift. Unit prices shown on tags added to US$360.

When she was ready to pay, the seller said that the total amount was US$432 because there was a tax that increased prices in 20%. The woman complained due to the high percentage and showed lower interest in the deal. After a few minutes, the seller decided to apply a discount of 10% because the purchase included five items. As a result, the net price paid by the tourist was US$388.8.