Margin of Error

On June 2, 2009, in Marketing, by Kenton Ross
“There’s no difference between markup and margin – it’s the same thing”
- Anonymous Chicago shop owner

In a recent conversation with a shop owner, the subject of margins and markup came up. He insisted there was no difference.

I asked, “If I buy a part for $12.00 and want to achieve a 55% gross profit margin, how much would I charge?”

After some tapping on the calculator keys, the shop owner replied, “$18.60″… which is a very common answer.

Unfortunately, in today’s fiercely competitive recessionary business climate – with the rising cost of doing business and tightening credit – this answer will tend to get your phone disconnected.

An overall gross profit margin of 55% is not at all unreasonable with today’s overhead… in fact, you would be hard pressed to survive the ups and downs of economic cycles with much less.

So here’s the question: How much do I need to sell the $12.00 part for to achieve a 55% gross profit margin?

Please post your $ answer in the ‘comments’ section below

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