Profit on materials

[lawncare]

Just a question i have i found the post for gross profit equation while looking for something else the way i usually make profit is find the lowest and highest nusery here in bham buy low sell high. Example:i buy red hardwood for 20 a yard plus 5% sales tax the other nusery sells for 40 a yd plus 10% which is what i bill cust for plus gas delivery etc. so im alrady getting double what i paid so would be a good idea to start using the equation even though in my eyes im already marked up materials.

Ex sell price 40.00/.7= 57.00 new price 30%markup which means about 40 more extra bucks what would you do

[DaveK]

First of all, 40 / .7 does not give you a 30% markup.

It gives you 30% profit.

30% markup on $40 would be $12 markup for a total of $52
( you are adding 30% OF $40 to the $40) Which is only about 23% profit.

But $40 / .7 = $57 where the $17 difference is your 30% profit.

This is the best method to use to keep your profits in line, but it isn't called markup, it's called gross profit margin.

Many people don't even realize the difference.

To answer your question (what would you do?)

It depends a lot on your local market. What does your competition charge?

And remember, if nobody ever complains about your prices being to high, they aren't high enough. No customer will ever tell you that they are to low.

[Ric]

Dave

Margin and mark up can be confusing so I will try and explain it my way also, even though you did a good job.


Margin is the % of gross profit that you make.
166=selling price X 40% margin == 100 cost of goods sold

Mark up is the % of cost that is added on
100= cost of goods sold X 40% mark up == 140 selling price

In this case there is a 26 difference in margin and mark up.

[DaveK]

And the important thing is to know the difference.

If you use 50% mark up on all your products.
You won't end up with 50% gross profit margin. You will have a gross profit margin of 33.3% and wonder why.

[turfman59]

A real ez way to think about it is this way

example it costs you 100 .00
you sell it for 150.00

Gross profit based on retail selling price is 33% of the total sale
or 50.00 dollars.

Everything you do should be set up on sales because thats the only thing that is constant.

When bookkeepers set up a Profit and Loss statement, cost of all catergories are based against sales, and are easily tracked as a percentage from month to month or even year to year.

An ez way to figure Gross profit based on sales is use whats called a RECIPRICOL

If you want to make 60% divide cost against .40
70% divide cost against .30
just as long as it comes to 100 youve got
it ez right ?

Remember one thing though you cant take a Gross to the Bank
and the higher the sales volume the better. Remember the only thing that goes in your pocket or in your kids college fund is the NET.... SEEEEEEEEE ya Bruce