How to Calc Selling Cost When % Cost Added To Sell Price?

  • Thread starter kieren12345
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In summary, the conversation discussed a costing problem with a product that includes various additional costs such as postage and transaction fees. The desired outcome is to calculate the sell price that includes the margin and all costs. A formula was discussed and provided, but there were some discrepancies in the calculations. Further suggestions and solutions were given to achieve the desired outcome.
  • #1
kieren12345
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Hi All,

I have a costing problem, that seams simple but I must be missing something.

We buy a product for X and we want to make a certain margin on this product, say %M. We have postage costs say P and finally we have a transaction fee that is charged at the total sell price. So this fee is making it difficult for me to calculate what I need my sale price to be as when I increase the sale price so does the transaction fee.

What I would really like is a formula, so I can put this in our costing sheet on excel.

Any help would be greatly appreciated.

Thanks
Kieren
 
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  • #2
It's just a matter of adding in the all of those additional costs. The orginal cost to you is M and you want to make a profit of r% of M (I wouldn't say "margin" as that usually includes things like postage and "transaction fees"). That means your price would have to be M+ .01rM= M(1+ .01r). Now add postage and transaction fees to that. If the profit is to be, say, 10% of the price, postage is $0.50, and transaction fees are $2.00, then you should charge (1.1)M+ 2.50.
 
  • #3
Thank you for your reply, but that's not what I am after. Sorry I probabily did not explain it very well.

M= margin %
P= Paypal Transaction Fee
S = Sell Price
R = Postage

What I would like to do is calculate in my price the sell price to include the margin and all costs.

If for instance I want to make 10% on a product that costs £10 and £2 to post. It would be this

(10+2)x(1+0.1) = £13.20 now if we sell at £13.20 then paypal will charge 3.9% +£0.2.

£13.20 *0.039+0.2 =£0.5148. If I then add this to £13.20 to try and cover all costs I get
£13.20 + £0.5148 = £13.7178.
If I then calculate this as sold again and paypal taking their fee it is know £13.71 *0.039+£0.2=£0.7348. as this shows, the current method I have not going to work.

I have tried playing with transposing the formula to get a good model for our spreadsheets, but I am just not knoledgable enough at maths.

Any suggestions please.
 
  • #4
You have a product, it's 10.00
It costs 2.00 to ship

You want to make a 10% margin on it:

12.00 * (1 + 0.10) = 13.20

Pay pal will charge you 3.9% + 0.2

13.20 * (1 + 0.039) + 0.2 = 13.9148

That number is what you want to charge the customer.
 
  • #5
but 13.9148 * 3.9% +0.20 = 0.7424
0.7424-13.9148 = 13.1723
I have lost 3p out of the margin?
 
  • #6
I think I understand what you're asking.

Call the base price B = X + R. You want to mark this up by some amount to get A, the price you tell PayPal; you then get to keep 0.961A - £0.20. (0.961 = 100% - 3.9%.) Your profits are π = 0.961A - £0.20 - B. You want π = M * A.

Set the two equal to each other:
0.961A - £0.20 - B = M * A

Move everything with A to one side and the rest to the other:
0.961A - M * A = £0.20 + B

Factor the left:
A(0.961 - M) = £0.20 + B

Divide:
A = (£0.20 + B) / (0.961 - M)

This is the price you should sell at. In your example, B = £12 and M = 0.1, giving A ≈ £14.17.
 
  • #7
kieren12345 said:
but 13.9148 * 3.9% +0.20 = 0.7424
0.7424-13.9148 = 13.1723
I have lost 3p out of the margin?

Ahhh I'm sorry, my mistake. CRGreathouse has it right.
 
  • #8
Thanks,

I have tried using the formula and found it is closer without the 0.20...

I have attached a spreadsheet, to check the costing and it is approximatley 1% out across a range of examples.

Please see attached
 

Attachments

  • Costing Test.xls
    14.5 KB · Views: 258
  • #9
Any ideas?
 
  • #10
kieren12345 said:
I have tried using the formula and found it is closer without the 0.20...

The formula is exact (with the 0.2); your spreadsheet calculates the margin wrong. The sell price $14.17 and the profit $1.4170, thus 10% margin.

If you want 10% markup rather than 10% profit, you can derive a different formula fairly easily -- just follow my method in post #6.
 

FAQ: How to Calc Selling Cost When % Cost Added To Sell Price?

1. How do I calculate the selling cost when a certain percentage is added to the sell price?

To calculate the selling cost, first multiply the sell price by the percentage being added. This will give you the amount of money being added to the sell price. Then, add this amount to the sell price to get the total selling cost. For example, if the sell price is $100 and the percentage being added is 10%, the selling cost would be $100 + ($100 * 0.1) = $110.

2. What is the difference between mark-up and margin?

Mark-up and margin are two different ways of calculating profit margins. Mark-up is the amount added to the cost price to determine the sell price, while margin is the percentage of the sell price that is profit. For example, if an item costs $50 and is marked up by 25%, the sell price would be $50 + ($50 * 0.25) = $62.50. The margin for this item would be 25% of the sell price, $62.50 * 0.25 = $15.63.

3. How do I calculate the cost price when given the sell price and mark-up percentage?

To calculate the cost price, first divide the sell price by 1 plus the mark-up percentage. This will give you the amount that represents the cost price plus the mark-up. Then, subtract the mark-up amount from this result to get the cost price. For example, if the sell price is $100 and the mark-up percentage is 25%, the cost price would be $100 / (1 + 0.25) = $80. Then, $80 - ($80 * 0.25) = $60, so the cost price is $60.

4. How do I determine the selling cost when given the cost price and desired margin?

To determine the selling cost, first calculate the sell price by dividing the cost price by 1 minus the desired margin. This will give you the amount that represents the cost price plus the desired margin. Then, subtract the cost price from this result to get the selling cost. For example, if the cost price is $80 and the desired margin is 25%, the sell price would be $80 / (1 - 0.25) = $106.67. Then, $106.67 - $80 = $26.67, so the selling cost is $26.67.

5. How can I use selling cost to make pricing decisions for my products?

Selling cost is an important factor to consider when making pricing decisions for your products. It allows you to determine the minimum price you must charge in order to cover your costs and make a profit. By calculating the selling cost for different mark-up or margin percentages, you can determine the most profitable price for your product. Additionally, regularly reviewing and adjusting your selling cost can help you stay competitive in the market and ensure the sustainability of your business.

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