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Q: i need the formula for calculating the margin ( Answered,   3 Comments )
Subject: i need the formula for calculating the margin
Category: Business and Money
Asked by: jamier-ga
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: hammer-ga 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,4621,265229,00.html

Search Strategy
calculate markup formula

- Hammer

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

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
Subject: Re: i need the formula for calculating the margin
From: nitrobait-ga on 04 Nov 2004 15:00 PST
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
Subject: Re: i need the formula for calculating the margin
From: reh-ga 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 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:

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: margi-ga 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, reh-ga's methodology is correct.  :-)

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