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

  1. Dec 7, 2009 #1
    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
     
  2. jcsd
  3. Dec 7, 2009 #2

    HallsofIvy

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    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.
     
  4. Dec 7, 2009 #3
    Thank you for your reply, but thats not what im 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.
     
  5. Dec 7, 2009 #4

    DavidSnider

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    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.
     
  6. Dec 7, 2009 #5
    but 13.9148 * 3.9% +0.20 = 0.7424
    0.7424-13.9148 = 13.1723
    I have lost 3p out of the margin?
     
  7. Dec 7, 2009 #6

    CRGreathouse

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    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.
     
  8. Dec 7, 2009 #7

    DavidSnider

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    Ahhh I'm sorry, my mistake. CRGreathouse has it right.
     
  9. Dec 8, 2009 #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
     

    Attached Files:

  10. Dec 11, 2009 #9
    Any ideas?
     
  11. Dec 11, 2009 #10

    CRGreathouse

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    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.
     
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