Figuring Material Cost

Discussion in 'Business Operations' started by wakesetter2001, Apr 23, 2007.

  1. wakesetter2001

    wakesetter2001 LawnSite Member
    Posts: 77

    How do you all figure material cost. Say you want to make 30% on all you materials. You have a $16.00 plant and you want to sell it for the 30% profit. I take the $16 and multiply it by 30% then add the 16 back on.

    16x.3=4.8
    4.8+16=20.80

    Is this correct because now I hear I am doing it wrong and should take the $16 and Divide it by 70%

    16/.7=22.86

    What is everyone else's take on this subject.
     
  2. Big M LawnnSnow

    Big M LawnnSnow LawnSite Member
    Posts: 217

    Yup that is the way to do it.
    16x.3=4.8
    4.8+16=20.80 is correct
     
  3. bullethead

    bullethead LawnSite Senior Member
    from Texas
    Posts: 273

    No its not correct, if you want to make a 30% Gross Margin - It is $22.86 - $16.00 = $6.86, $6.86 (Gross Margin)/$22.86 (Sales Price) = 30% Gross Margin Percentage: so taking your cost and dividing it by .7 is the correct way to get a 30% gross margin or gross profit

    If you use $4.80/$20.80 = you only get a Gross Margin or Gross Profit of 23%

    Taking a cost number and multiplying it by 1.3 gives you a 30% MARKUP, but it does not give you 30% gross profit or gross margin.

    Good question that is often misunderstood.
     
  4. wakesetter2001

    wakesetter2001 LawnSite Member
    Posts: 77

    Anyone else, I have one for and one against, so what does everyone else do.
     
  5. prosperity

    prosperity LawnSite Member
    Posts: 92

    bullethead is correct - do the math.
     
  6. Runner

    Runner LawnSite Fanatic
    Posts: 13,494

    That is correct, but if you aren't doing 41%, you aren't in business.
     

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