Ah so. We just stick in a much smaller number than 25% - (we're in a pretty
cut-throat business) and call it Profit actually. Guess it's a good thing
I'm not in our accounting dept?

"Harlan Grove" wrote:

"JLatham" <HelpFrom @ Jlathamsite.com.(removethis) wrote...
....
. . . But your profit margin is going to (most
likely) be applied against the total of all costs when all of that is
added up.

Simple example using the 3 overheads I just mentioned:
A1 $100 [basic cost of product]
B1 =A1*.1 [$10 for 10% cost for warehousing]
C1 =A1 *.08 [$8 for 8% cost for shipping]
D1 = A1+B1+C1 [total of all costs ]
E1 = D1*1.25 [25% profit desired - displays as $147.50]

Wrong!

Multiplying D1 by 1.25 sets the profit MARGIN at 20%. That is, 25% MARK-UP
produces 20% profit MARGIN. D1 returns 118. E1 returns 147.5. The difference
between them is 29.5, and 29.5 / 147.5 = .2 .

Lookup the term 'profit margin' on any web site or business textbook you
like. You'll find something like

Profit Margin = Net Income / Revenue

[from http://www.investopedia.com/universi...ofitmargin.asp ]

The key point here is that revenue *INCLUDES* the profit, or net income.

The correct profit MARGIN calculation is

E1: =D1/(1-0.25)

Essential to understand the difference between profit MARGIN and MARK-UP.
Margin can NEVER exceed 100%. Mark-up can.