Calculating Retail Price Based On Gross Profit Margin Percentage with commission

  • MHB
  • Thread starter sealsseals
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In summary, to calculate the retail price for a 15% gross profit margin with a cost of $10.00 and a 20% commission off retail, the formula is r = c / (1 - k - m), where r is the retail price, c is the cost, k is the commission percentage, and m is the gross profit margin percentage. Using this formula, the retail price in this scenario would be $200.
  • #1
sealsseals
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Hi,

How do I calculate the retail price for the following scenario:

Retail price less a 20% commission less the cost of the product = a 15% gross profit margin (Gross profit margin percentage = (retail price - total cost (20% off of retail and cost of product)) / retail price

I know what the cost of the product is ($10.00) and I know the gross profit margin % I want to make is (15%) and I know what the commission percentage off of retail will be (20%), how do calculate what the retail price should be to achieve desired gross profit margin %?
 
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  • #2
Outch...the wording of your problem makes my head spin :)

Here's what I understand it is; example:
Cost of widget: 100

Customer Joe pays : 150
Jack the Salesman gets: 30 (20% of 150)

Left for you is 150 - 30 = 20 : that's 20% of the cost.

How did I do?!
 
  • #3
Thank you for the reply. Partially correct.

First you must understand gross profit margin % in the context of this question which is retail price-cost/retail price, for example if the retail price is 15.00 and the cost is 5.00 then the gross profit margin % is 15-5/15=66%, this means that 66% of the retail price is profit, 15*66%=10.00, this is correct because 15 retail minus 5.00 cost equals 10.00, 10.00 is the gross margin profit in dollars (not %).

I'm trying to figure out how to calculate what the retail price should be to earn 15% gross profit margin when my cost in the above example is the cost of the product AND a 20% commission of the retail price. I will always know the gross profit margin % I want to make, and the cost of the product and the % of commission off retail, I just now need to know how to calculate what the retail price should be. Make sense?
 
  • #4
sealsseals said:
...which is retail price-cost/retail price, for example if the retail price is 15.00 and the cost is 5.00 then the gross profit margin % is 15-5/15=66%,...
Above should be: (retail price - cost)/retail price and (15 - 5)/15.
Brackets are required; else 15 - 5/15 = 14.66.

FORMULA: r = c / (1 - k - m)

Example:
cost = c (130)
commission = k (.20)
margin = m (.15)
retail = r (?)

r = 130 / (1 - .20 - .15) = 200

+200 (retail)
-130 (cost)
-040 (commission)
------
+30 (margin)

Hokay Dokay?
 
  • #5
Brilliant! Thank you very much for your help, exactly what I needed!
 

1. How do you calculate retail price based on gross profit margin percentage?

To calculate the retail price based on gross profit margin percentage, you need to first determine the cost of the product or service, including any additional expenses such as shipping or packaging costs. Then, multiply the cost by the gross profit margin percentage (expressed as a decimal). Finally, add the result to the cost to get the retail price.

2. Can commission be included in the calculation of retail price based on gross profit margin percentage?

Yes, commission can be included in the calculation of retail price based on gross profit margin percentage. To do so, simply add the commission amount to the cost before multiplying by the gross profit margin percentage.

3. What is the purpose of calculating retail price based on gross profit margin percentage?

The purpose of calculating retail price based on gross profit margin percentage is to ensure that businesses are making enough profit on their products or services to cover their costs and generate a profit. It also helps businesses set competitive prices in the market.

4. How does the gross profit margin percentage affect retail price?

The gross profit margin percentage directly affects the retail price. A higher gross profit margin percentage means a higher retail price, while a lower gross profit margin percentage means a lower retail price. This is because the gross profit margin percentage is a measure of how much profit is made on each product or service sold.

5. Is it necessary to regularly recalculate the retail price based on gross profit margin percentage?

Yes, it is necessary to regularly recalculate the retail price based on gross profit margin percentage. This is because the costs of products or services may change over time, and the gross profit margin percentage may also need to be adjusted to remain competitive in the market.

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