Key takeaways
- Price and sales speed must be decided together. Cutting the price and selling faster does not necessarily mean a better return.
- In the example project, a 5% price cut requires sales to run about 1.72 times faster across the whole curve to achieve the same Project IRR, which is a very steep acceleration.
- Sales speed can reduce Peak Funding substantially, while price increases profit directly. The two therefore answer different questions.
Two variables with different roles
Selling price changes every baht of revenue directly and flows almost fully through to profit. Take-up, or sales speed, does not change total revenue but changes the timing of cash inflows, so it mainly affects IRR and Peak Funding.
Monthly absorption rate = monthly sales ÷ number of units released for sale × 100%
| Monthly absorption | General interpretation | Effect on the funding plan |
|---|---|---|
| Less than 1% | Very weak market | Review project viability |
| 1–2% | Normal to slow | Presale takes 3–5 years |
| 2–4% | Good market | Presale takes 2–3 years |
| 4–7% | Hot market | Presale takes 1–2 years |
| More than 7% | Very hot market | Price may be too low |
This table is a preliminary guide only. It should be compared with competing projects in the same location.
Two-way sensitivity: price × sales speed
Example project: payment terms 20/15/65, equity THB 400 million, facility THB 450 million. A speed of 1.00x is the base curve, with 20% sold at construction start and 80% at completion. Speeds of 0.75x and 1.25x stretch or compress the entire sales curve.
| Price | Sales speed | Sold at completion | Project IRR | Equity IRR | Peak Funding | Gap | Net profit |
|---|---|---|---|---|---|---|---|
| −5% | 0.75x | 62.0% | 13.8% | 13.3% | 1,009.0 | 196.6 | 275.7 |
| −5% | 1.00x | 80.0% | 17.4% | 17.0% | 894.1 | 77.6 | 280.3 |
| −5% | 1.25x | 97.5% | 19.4% | 18.1% | 788.6 | 0.0 | 286.4 |
| Base | 0.75x | 62.0% | 17.0% | 16.8% | 988.2 | 175.0 | 354.6 |
| Base | 1.00x | 80.0% | 21.4% | 21.2% | 867.9 | 49.7 | 359.3 |
| Base | 1.25x | 97.5% | 23.9% | 22.3% | 761.5 | 0.0 | 366.4 |
| +5% | 0.75x | 62.0% | 20.2% | 20.3% | 967.3 | 153.4 | 433.4 |
| +5% | 1.00x | 80.0% | 25.3% | 25.2% | 845.2 | 21.6 | 438.3 |
| +5% | 1.25x | 97.5% | 28.3% | 26.2% | 734.5 | 0.0 | 446.3 |
Peak Funding, Gap and net profit are in THB million. Project IRR is calculated before tax and before financing, while Equity IRR is calculated after interest and tax, so the two columns should not be compared directly.
How to read this table
- 5% price cut at the original speed: net profit falls from 359.3 to 280.3 THB m and Project IRR falls by 4.0 points.
- 5% price cut with sales 25% faster: Project IRR is still below the base case, at 19.4% versus 21.4%, but the Gap disappears. If raising additional funds is the main constraint, this trade-off may be worthwhile.
- 5% price increase with sales 25% slower: Project IRR of 20.2% is slightly below the base case and net profit is up to 74.1 THB m higher, but Peak Funding rises by 99.4 THB m and the Gap increases to 153.4 THB m.
Break-even point of a discount
A better question than "is a discount a good idea?" is "how much faster must we sell to make it worthwhile?", using a sales speed curve that is accelerated across the whole curve in the same way.
| Price cut | Required speed-up (times) for Project IRR to match the base case |
|---|---|
| 3% | 1.28 times |
| 5% | 1.72 times |
| 7% | 2.83 times |
The figures show that the required acceleration rises very quickly, because the large lump sum already comes in on transfer day. Faster selling therefore only helps with the down payments and the sales remaining after completion, while a price cut affects every baht directly.
Pricing tools to test together
| Tools | Approach | What to measure |
|---|---|---|
| Launch price and price benchmarking | Compare 5–10 competing projects, adjusted for location, quality and size | Price position relative to the competitor range |
| Price Escalation | Raise prices in steps as sales progress, for example 2–5% per step | Sales speed after the price increase |
| Early Bird | Limited-quantity unit discounts, for example 3–7% | Actual additional sales compared with the discount paid |
| Premium Unit Pricing | Price by position, floor and view | Proportion of unsold units at the end of the project |
| Inventory Release | Release units in phases | Reduction of discounts and price maintenance |
Sales speed patterns to build into the model
Models that use a constant sales speed every month tend to be optimistic. Split the sales curve into stages: Initial Rush in the first 1–3 months, Steady State, Slow Down and Final Push. Include a cancellation rate as well, typically tested in the 5–10% range and broken down by buyer group, because the transfer success rate can differ between groups.
Warning signs during sales: If sales are below 50% of plan or the cancellation rate exceeds 15%, review the funding plan immediately. If actual sales stay below plan, review both pricing and the cash plan together rather than relying on discounts alone.
Decision framework
- Define clearly whether the target is IRR, profit or closing the funding gap
- Test price, sales speed and payment terms together in a single table
- Set a discount ceiling based on the acceptable impact on IRR
- Check that every case still stays within the facility that can realistically be raised
- Set price review points, for example when 25%, 50% and 75% of units are sold