 Working out profit margins as a percentage

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

Not open for further replies.
1. wanting2learnUKBF ContributorFree Member

91 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 Member since: Mar 26, 2007
2. An OasisUKBF NewcomerFull Member

9,901 1,684
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: Member since: Oct 3, 2006

10,945 3,530
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 Member since: Aug 2, 2005

5,358 743
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: Member since: Jan 21, 2008
5. 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: Member since: Jul 18, 2006
6. 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: Member since: Oct 3, 2007
7. 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

5,358 743
Mariam,

why dont you put your calculation down and we can comment/correct it for you?

Posted: May 22, 2008 By: Member since: Jan 21, 2008
9. 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 ? Posted: May 22, 2008 By: Member since: Oct 3, 2007

5,358 743
****,

How is Mariam going to learn if you just give her the answer?

Posted: May 22, 2008 By: Member since: Jan 21, 2008
11. 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: Member since: Oct 3, 2007
12. katherineprestonUKBF NewcomerFree Member

1 0
Hi

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

thks

Posted: Nov 24, 2012 Member since: Nov 24, 2012
13. 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: Member since: Oct 3, 2007

14. 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: Member since: May 3, 2012