Profit | Sempli Bookkeeping

PRICE TO SELL

AND PROFIT

"A lot goes in to pricing your small business products and services. You can't randomly assign prices to your offerings. Otherwise, your prices could be far higher than what customers are willing to pay or far lower than what you need to turn a profit."

-Patriot Software

Both markup and margin will help you to set prices and measure productivity.

Calculating markup and margin are important when setting prices that will cover your expenses and leave you with a profit.

Margin shows the percentage of your earned revenue you keep after covering your cost of goods sold.

(Revenue - COGS) / Revenue = Margin

Markup shows the percentage of how much more your selling price is than your cost of goods sold.

(Revenue - COGS) / COGS = Markup

Know how much profit that you want to make!

Set goals!

Set prices to be able to meet those goals!

MARKUP VS MARGIN

MARGIN EXAMPLE:

MARGIN

Margin = (Revenue - COGS) / Revenue

Suppose you want to sell a product. It cost you $200 to make the product. You want to sell the product for $400.

Margin = ($400 - $200) / $400

Margin = $200 / $400

Margin = .50 or 50%

This means that you keep 50% of your profits after subtracting your costs.

MARKUP EXAMPLE:

Markup = (Revenue - COGS) / COGS

Suppose you want to sell a product. It cost you $200 to make the product. You want to sell the product for $400.

Markup = ($400 - $200) / $200

Markup = $200 / $200

Markup = 1 or 100%

This means that your product is priced at twice the cost to make it.

MARKUP

Expenses

You still have to pay your monthly expenses, other than the cost to make the product.

Fixed expenses are the same from month to month and are easier to account for.

Cut expenses where you can to create an obtainable budget.

Budget

Create a budget that will allow you to calculate the revenue needed to pay for all estimated monthly expenses, and leave you with a reasonable profit.

Once you know the revenue needed, determine the markup that is needed to meet your budget goals.