example: I must pay a supplier $60 what must I charge a customer to
ensure a 24% margin of profit?  I know one way to calculate is to
divide 65 by .76 or 76%.  Is there another way?  If I charge my
customer $65, what is the formula to see what my margin of profit is?

If you know your cost, then you can find the price you must charge by
multiplying the cost by 1 plus the percent of profit you want. In the
example above:

Cost = $60
Required Profit = 24%

60 * 1.24 = 74.4

You must charge at least $74.40 to achieve your required profit margin.


The formula for markup percentage is (Sell Price - Cost) / Sell Price.
Cost = $60
Sell Price = $65

(65 - 60) / 65 = .0769

Markup Percentage is 7.69%


Additional Resources
---------------------
Entrpreneur Article showing several simple business calculations
http://www.entrepreneur.com/article/0,4621,265229,00.html

Search Strategy
---------------
calculate markup formula

- Hammer

---

Clarification of Answer by hammer-ga on 05 Nov 2004 04:55 PST

Jamier,

Nitrobait is correct for that type of calculation. I saw you were
dividing 65 (your sell price) rather than 60 (your cost) and thought
that you were looking for a different number. If the examples I've
given are not what you were looking for, please let me know.

- Hammer

This answer is incorrect. Profit margin is defined as
(sales-cost)/sales, which is equivalent to cost/(1-(profit%/100)). To
achieve 24% on an item that costs $60, you have to charge $78.95
$60/.76). Dividing 60 by .76 is not equivalent to multiplying 60 by
1.24.

Seems to me that there are two issues here: markup and margin. 

Generally the margin is the difference between the selling price and
the cost. So if you want a margin (often called gross margin or gross
profit) then you divide the cost by 1-your required margin.

Using the numbers given if you want a margin of 24% you divide by
1-0.24=0.76. So on a $60 cost you get a selling price of 60/0.76 =
$78.95. The margin is thus $18.95. The % margin is 18.95/78.95 = 0.24:
24%.

The markup is the selling price divided by the cost

In the above case the markup is 78.95/60 = 1.3158 or 31.58%

In the question the markup is 65/60 = 1.0833. This is often referred
to as an 8.33% markup

If you carefully read the reference given in the answer you will find
that it agrees with the above and gives a lot more detail.

Another consideration, separate from the calculation.  With a number
as low as 24%, I wonder if you may be looking for NET margin versus
GROSS margin of 24%.  A gross margin of 24%, to which overhead and
other costs must still be applied, would get me hung by most of my
clients/employers.  Net margin (on a gross 24% margin) could be as
small as 9% or so... Hardly worth anyone's time. I use a spreadhsheet
model that allows me to apply additional costs so that I can determine
my net.  I have a minimum net margin metric of 20%, and I typically
wind up with a gross margin between 40% and 60%, depending on the
product. Of course, if this is simply a mathmatical excercise versus a
business problem, my 2 cents aren't worth the time it took me to write
this note. Either way, if I understand the question correctly, which
is debatable, reh-ga's methodology is correct.  :-)