Gross Margin (quick question)
buster350
Registered Posts: 9 Regular contributor ⭐ ? ⭐
Hi all... dumb question and yes i know its late but .......
Cost of production equals (Say) £1500.... the question is...
If the target gross margin with this cost base is 48%, how much should we estimate for the job to the customer excl. Vat?
i am thinking 1500 * 48% but just dont look right this time of night?
Please help my silly question
Cheers
Cost of production equals (Say) £1500.... the question is...
If the target gross margin with this cost base is 48%, how much should we estimate for the job to the customer excl. Vat?
i am thinking 1500 * 48% but just dont look right this time of night?
Please help my silly question
Cheers
0
Comments

I always find Margin and Mark up really tricky. Right lets see how I do....
Mark up is the amount that you add on top of the cost price. So if it cost 80 and you have a 25 % mark up the selling price would be £100.
Working it backwards if you have the selling price but want to find out the cost when you are told it has been marked up by 25 % the maths is 100/125 *100 = £80
Margin is the amount of the total sale that is profit so in the above example 100  80 = 20 profit. 20/100 = 0.2 or 20 % margin.
The quickest way to work out the selling price that is required to achieve a certain margin is to use
Cost / (( 100 Margin Requied/100) (sounds more complicated than it is....)
In your example this would be
1500/ (0.52) = 2885
As a check you are correct what you do is remove the cost price from the selling price so you calculate the profit so:
2885  1500 = 1385
So 1383 of the total selling price is profit which means you have a margin of:
1385/ 2885 = 48 %
(there has been rounding in my calculations but the basic principle is correct !)
Hope that helps.0 
Nothing seems to cause so much confusion as this;
Markup is based on cost. Its a cost plus method. Cost 100, markup 10%, sell 110.
Margin is based on revenue. If you sell at 100 with 10% margin, the cost must be 90. Or vice versa cost 90 /0.9 to gross the cost up, to find the selling price of 100.0 
What PGM said
I understand margin but it is so difficult to explain well ...0 
I hope this helps based on VAT
If you want to sell something for £200, then you have to add 20% for VAT so the customer will pay £240
You don't take off 20% to find the amount without VAT
The VAT example is a bit like sales mark up
You find the costs and add a % to find the price
Margin on the other hand is how much of the price is profit
If we assume our product costs us £200 to make and is sold for £240
(and there is no VAT)
Then the margin is £40/£240 or 16.7%0
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