

Subject:
i need the formula for calculating the margin
Category: Business and Money Asked by: jamierga List Price: $2.00 
Posted:
04 Nov 2004 13:33 PST
Expires: 04 Dec 2004 13:33 PST Question ID: 424533 
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? 

Subject:
Re: i need the formula for calculating the margin
Answered By: hammerga on 04 Nov 2004 13:54 PST 
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  


Subject:
Re: i need the formula for calculating the margin
From: nitrobaitga on 04 Nov 2004 15:00 PST 
This answer is incorrect. Profit margin is defined as (salescost)/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. 
Subject:
Re: i need the formula for calculating the margin
From: rehga on 04 Nov 2004 15:02 PST 
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 1your required margin. Using the numbers given if you want a margin of 24% you divide by 10.24=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. 
Subject:
Re: i need the formula for calculating the margin
From: margiga on 04 Nov 2004 16:36 PST 
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, rehga's methodology is correct. :) 
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