How to set list price from cost ?

[paulyeo11]

Hi All

I want to know how to set my list price . So when I give discount amount I know my Gross profit from cost price.

For example now my cost price = 100 and I set list price as 200. ( base on mark up 50 % ) 100 / 0.5=200

If I give customer 200 with discount 10 % (200 × 0.9=180 )it is hard for me to know how many profit I make . Because profit is cal base on cost.

GP % = (180-100)/180=80/180= .....

I lost and confusing. ..

Paul

[eduardo_sommer]

Hi Paul,

Your calculation is right: GP% = (Price - Cost) / Price * 100. In your case, 80/180*100, which gives us 44.44%

You only forgot to multiply by 100.

Eduardo

[paulyeo11]

Hi Edu

Thank for clear my confusion.

My actual objectives :-

1. I create a list price base on cost mark up 50 %.

2. Now when sales staff give discount 10% from list price coy earn 44% Gross profit.

My question is how to let staff easy relate 10% equal GP% 44 ?

Paul

[eduardo_sommer]

Hi Paulo

If you have a Markup M and a Discount D, you can calculate your Gross Profit % (GP%) as

GP% = ((M+1) * (1-D) - 1) / ((M+1) * (1-D))

So, in our case, where your markup is 1 (100%) and the discount is 0.1 (10%), we will have:

GP% = ((1+1) * (1 - 0.1) - 1) / ((1+1) * (1- 0.1))

GP% = ((2 * 0.9) - 1) / (2 * 0.9)

GP% = 0.8 / 1.8

GP% = 0.4444

GP% = 44.44%

Does this answer your question?

Eduardo

[paulyeo11]

Hi Edu

I don't have issue on cal the GP% Given the List price and Discount. 

My issue is how to let the user know if he given certain discount to customer . What it the GP % ?

As the relationship between the mark up % and discount % and GP % are not not easy to remember. 

My question is it is possible to make it easy remember.

For example mark up 50 % after give discount 10% , logically should be 40% , but it turn up 44 %.

As I like user to know if he want to hv GP % 30% , he can only give X % discount.

My point is I want to make it easy remember. .. but I think it is not possible. Because for markup I base on cost and for discount I base on Selling price. 

Paul

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[eduardo_sommer · Accepted solution]

You're right, Paul

The only thing that I disagree is that your markup is 100% and not 50%.

The discount is apllied on the Selling Price. But, the selling price is a function of cost and markup. So, my equation for the Gross Profit % is based only on markup and discount.

With my equation, you can solve the question of what discount gives you a Gross Margin of 30%, assuming a markup of 100%.

GP % = 0,3 (30%)

M = 1 (100%)

0.3 = ((1+1) * (1-D) -1) / ((1+1) * (1-D))

after some steps, you will have D = 0.2857 (28.57 % as discount)

The attached spreadsheet shows the effect of Markup and Discount on the Gross Profit.

Eduardo

[paulyeo11]

Hi Edu

Assume cost price = 100

Markup 10 % = 100/.9=111.11

Mark up 50% = 100/.5=200

Mark up 80% = 100/.2=500

Mark up 90% = 100/ .1=1000

I don't know mark up 100 % equal what.....It is infinity ?

Sent from Samsung Mobile

[eduardo_sommer]

Hi Paul

I think you're confusing mark up with gross margin. Mark up is the amount you sum to the cost to obtain the list price. So, when you have a cost of 100, and you add 100%, you obtain a list price of 200.

Gross margin is what is left when you take the cost from the list price. In this case, when your price list is 111.11 and your cost is 100, you have a gross margin of 10%.

A mark up of 100% is equivalent to a gross margin of 50%.

In fact a gross margin of 100% is only possible if you have a cost of zero.

Eduardo

[paulyeo11]

Hi Edu

You are very good in your excel skill , as i just read abt the excel file you created.Also you are very clear on cost and selling price and GP % formula.

I think you are accountant ?

Paul

[eduardo_sommer]

No, Paul. I'm not an accountan I work iwith IT for 36 years and I like to play with numbers, and this Gross Profit, Gross Margin, Cost and Price confusion occurs very often.

Regards

Eduardo