Q:

How do you calculate profit on return?

A:

Quick Answer

Profit on return is calculated by subtracting a unit's selling price from the cost to produce, dividing that difference by the selling price and multiplying that number by 100. This equation gives the percentage margin of profit made on each unit.

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Full Answer

The profit on return equation can be used to set a selling price per product based on the target margin. For example, to get a minimum 60 percent profit margin on a unit that costs $2 to produce, the unit sales price must be at least $5.

Profit on return is similar to gross profit margin, which calculates a percentage margin of total net sales of a company compared to the total cost of goods. This gives an overall margin on everything sold, whereas profit on return gives the margin on a single unit.

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