Working out profit margins as a percentage

Discussion in 'General Business Forum' started by wanting2learn, Apr 9, 2008.

  1. wanting2learn

    wanting2learn UKBF Newcomer Free Member

    Posts: 91 Likes: 1
    Hi, I am helping a friend do a calculation and just want to double check with you guys:

    I need to know how to do a formula for the following:

    Working out profit margins as a percentage

    So for example; Cost price is £1
    RRP is £3
    Profit margin is 60.83%

    Also, if the profit margin is set at say 60% i need a formula to calculate what the RRP should be.

    e.g.
    Cost Price is £5
    RRP is ?
    Profit Margin is 60%

    So what formual would I use for this?

    Thanks

    Harry
     
    Posted: Apr 9, 2008 By: wanting2learn Member since: Mar 26, 2007
    #1
  2. An Oasis

    An Oasis UKBF Newcomer Full Member

    Posts: 9,903 Likes: 1,682
    Assuming that you are working with financial software you can use a command like Excel has "goal seek" which allows you to alter figures at will.
     
    Posted: Apr 9, 2008 By: An Oasis Member since: Oct 3, 2006
    #2
  3. directmarketingadvice

    directmarketingadvice UKBF Legend Free Member

    Posts: 10,813 Likes: 3,466
    I dont' get that number. Is it not 66.67%?

    (RRP - Cost) / RRP = Profit Margin

    Therefore, RRP = Cost / (1 - Profit Margin)

    So, in this instance RRP = 5 / .4 = £12.50

    Hope this helps,

    Steve
     
    Posted: Apr 9, 2008 By: directmarketingadvice Member since: Aug 2, 2005
    #3
  4. consultant

    consultant I Can Help Your Business Staff Member

    Posts: 4,106 Likes: 513
    The most common calculation most retailers work on is:
    Retail ex VAT margin:
    ((selling-vat)-cost)/(selling-vat)

    if you want 60% margin (if my memory serves me right):
    (selling-vat)*40% (or.4)


    Steve, the calculation used by the OP is (3-1)/3, which doesnt actually show much, but is the same as your (RRP - Cost) / RRP = Profit Margin, shown as a %. ((3-VAT)-1)/3 would give the inc VAT margin
     
    Posted: Apr 10, 2008 By: consultant Member since: Jan 21, 2008
    #4
  5. cubzworld

    cubzworld UKBF Newcomer Free Member

    Posts: 177 Likes: 9
    I am sure markup has to be more of a percentage than the gross profit you want to achieve.

    We always mutiply (cost price without VAT) by 2.35 to achieve a gross profit of 50%

    which gives you cost price minus VAT, mark up by 100%, then add selling VAT

    a gross profit of 66.6% would require a markup of 200% of cost price (minus VAT)

    I'm not the best at maths so I am sure someone will correct me!
     
    Posted: Apr 10, 2008 By: cubzworld Member since: Jul 18, 2006
    #5
  6. DickM

    DickM UKBF Newcomer Free Member

    Posts: 403 Likes: 51
    Hi Harry,

    Firstly most businesses address wholesale profit, rather than retail. However, I have sent you a PM (private message), which should give you exactly what you are seeking. Hopefully, this will also give you the flexibility to change the percentage profit margin, so that you can measure the resulting price change effect. Good Luck!
     
    Posted: Apr 10, 2008 By: DickM Member since: Oct 3, 2007
    #6
  7. Guest

    Posts: 0 Likes: 0
    I ve been tryin to found out the formula for
    "percentage profit"
    can u plz help with this question
    here it goes
    Q: A shopkeeper buys 20 eggs at 15dollars. he finds that 10% of the eggs are not saleable but sells the rest at 20 Dollars a dozen, compute his percentage profit?
    could u plz give a solution??
     
    Posted: May 22, 2008 By: Member since: Jan 1, 1970
    #7
  8. consultant

    consultant I Can Help Your Business Staff Member

    Posts: 4,106 Likes: 513
    Mariam,

    why dont you put your calculation down and we can comment/correct it for you?
     
    Posted: May 22, 2008 By: consultant Member since: Jan 21, 2008
    #8
  9. DickM

    DickM UKBF Newcomer Free Member

    Posts: 403 Likes: 51
    A: Cost = $15

    Sales = 18 eggs for $30 in total

    Profit = $15 (sales less cost)

    Percentage Profit = $15/$30 = 50%

    there, that was no too hard for anyone, was it ? :eek:
     
    Posted: May 22, 2008 By: DickM Member since: Oct 3, 2007
    #9
  10. consultant

    consultant I Can Help Your Business Staff Member

    Posts: 4,106 Likes: 513
    Dick,

    How is Mariam going to learn if you just give her the answer?
     
    Posted: May 22, 2008 By: consultant Member since: Jan 21, 2008
    #10
  11. DickM

    DickM UKBF Newcomer Free Member

    Posts: 403 Likes: 51
    Get a life. I did not just give her the answer, and Mariam should either ask her tutor (or equivalent) these basic questions, rather than this business forum.
     
    Posted: May 22, 2008 By: DickM Member since: Oct 3, 2007
    #11
  12. katherinepreston

    katherinepreston UKBF Newcomer Free Member

    Posts: 1 Likes: 0
    Hi

    I am alsotrying to calculate gross profit margin, can you send me the formula pls.

    thks
     
    Posted: Nov 24, 2012 By: katherinepreston Member since: Nov 24, 2012
    #12
  13. DickM

    DickM UKBF Newcomer Free Member

    Posts: 403 Likes: 51
    e.g.

    Sales £5000

    Cost of Sales (materials/labour & overhead) £4000

    Gross Profit = £1,000

    or £1,000 divided by £5,000 = 20% gross profit margin

    If there are non-related costs (not directly associated with producing sales), say = £400, then final net profit declared will be £600, or 12% of Sales.

    Hope this helps :)
     
    Posted: Nov 24, 2012 By: DickM Member since: Oct 3, 2007
    #13
  14. remohead

    remohead UKBF Newcomer Free Member

    Posts: 5 Likes: 0

    great thread guys - just one question :- In the calculation above
    "Percentage Profit = $15/$30 = 50%"

    is the $15 the original cost for the eggs or the profit made by selling them?

    many thanks,

    Chris
     
    Posted: Jun 17, 2013 By: remohead Member since: May 3, 2012
    #14
  15. Staff-India

    Staff-India UKBF Newcomer Free Member

    Posts: 3 Likes: 0
    $15 is the profit made from selling the eggs. I can see the confusion, incidentally the profit and the initial cost are both the same.

    If anyone needs support for their business, I work for Staff India, do take a few moments to explore how we can help you. Regards.. Rob.
     
    Posted: Jan 30, 2014 By: Staff-India Member since: Jan 30, 2014
    #15