How to determine your selling price

You have bought your product and wish to determine what price to sell each without making a loss. One simple way of doing this is to use the following formula:

     Selling price = Variable Costs + Overhead Costs (Fixed Cost) + Profit

Variable costs are all the costs directly involved in the manufacturing and shipping or postage of your product while Overheads costs are all the costs involved in selling product

Example:
     All the costs involved in product                                     Amount in Pounds
     Manufacturing Cost /cost per unit inc P&P  (Variable cost)       60
     Administration cost                                     (Fixed cost)             6
     Distribution Cost                                        (Fixed cost)             6
     Promotional and selling cost                        (Fixed cost)             8
     Total Costs Price                                                                  80
     Profit margin                                                                           10
     Selling price                                                                          90

To calculate % Gross Profit Margin:
         % Gross Profit Margin = (Gross Profit Margin / Selling Price) x 100%
         % GPM = (£10/£90) x 100
        % GPM = 0.1111 x 100
        % GPM = 11.11%

To calculate % Markup:
        % Markup = (Selling Price - Cost Price) / Cost price * 100%
        % Markup = ( £90 - £80)/ £80 x 100%
        % Markup = £10/£80 x 100%
        % Markup = 12.5%

If % Markup is increased to 30%, then the new profit margin would be:
         New Profit Margin = Markup % * Cost Price
         New Profit Margin = 30% x £80
         New Profit Margin = £24

and the new selling price would be:
         New Selling Price = New profit margin + Cost Price
         New Selling Price  = £24 + £80
         New Selling Price = £104


Other ways of determining your selling price:

The following shows more ways of arriving at a selling price. The figures above and the formulas below will be used , we should arrive at the same selling price as above.

Selling Price = Cost Price + (Cost Price x % Markup)
      Selling Price = £80 + (£80 x (12.5/100))
      Selling Price = £80 + (£80 x 0.125)
      Selling Price = £80 + £10
      Selling Price = £90

Selling Price = Cost Price x (1 + % Markup)
     Selling Price =  £80 x (1 + (12.5/100))
     Selling Price = £80 x (1+ 0.125)
     Selling Price = £80 x 1.125
     Selling Price =  £90

Selling Price = Cost Price / (1 - Aspired Gross Profit Margin)
     Selling Price = £80 / (1 - 11.11/100)
     Selling Price = £80 / (1 - 0.1111)
     Selling Price = £80 / 0.8889
     Selling Price = £89.99
                            Approx £90


See how to calculate your Markup Percentage