Q:

What is the formula to figure out price based on margin percentage and cost?

A:

Quick Answer

Optimal sales price is calculated as the necessary revenue to achieve a desired profit margin divided by the quantity of product units forecast to sell, explains small-business writer Gregory Hamel. A profit margin is the proportion of sales profit a business generates from revenue after subtracting production costs.

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What is the formula to figure out price based on margin percentage and cost?
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Full Answer

Production costs include the expense of raw materials, parts, labor and indirect costs, such as facility expenses, taxes and insurance. Quite simply, sales profit is equal to sales revenue minus production costs. The profit margin percentage is equal to gross profit divided by revenue. For example, if a company has a production cost of $40,000 and wants to achieve a 60-percent profit margin, it must reach a total sales revenue of $100,000. Continuing with this example, if the company has 50,000 product units it forecasts to sell, it must sell the units at an optimal price of $2.00 to achieve $100,000 in sales revenue and a 60-percent profit margin.

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