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

How to calculate markup percentage

You've bought your product - it's in your warehouse or in storage somewhere but how do you decide what price to sell it for.  Markup percentage enables you set a price for your product based on the percentage profit you wish to gain. This type of pricing is called the cost based pricing or markup pricing.

For Instance:
1: You bought T-shirts at £0.50 each. You want a profit of 60% on each T-shirt when you sell them. Your selling price can be calculated by applying the following formula:

       Selling Price = (Markup % * Cost Price) + Cost Price
       Selling Price = (60% x £0.50) + £0.50
       Selling price = £0.30 + £0.50
       Selling Price = £0.80
This will be the selling price of the T-shirt


2: But if you already have a product that you are selling for £24 and you bought for £15. To calculate the Markup percentage for that product, apply the following formula:

       Markup = (Selling Price - Cost Price) / Cost price * 100%
       % Markup = (£24 - £15) / £15 x 100%
       % Markup = £9 / £15 x 100%
       % Markup = 60%
Your markup percentage is 60%

NB: 
Please note that this markup % has taken into account, an approximation of all your variable costs and overhead costs hence the high percentage used to make calculation.

Watch this video on how to calculate markup percentage

Math Lessons : How to Calculate Markup Percentages, by eHow

Click to read about how to determine your selling price that takes into account both variable and overhead costs.

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When was the last time you were up at 3am? Big birthday bash? New baby? Box set?
There are many life-affirming reasons to have your eyeballs open at silly o’clock. But slaving over your accounts or squinting at your Google Analytics dashboard aren’t among them.

Image from savvysugar

There are four classic mistakes that start-ups and small businesses often make. Here’s how you can avoid them:

1. Being a jack of all trades

There’s an unavoidable period where start-up owners have to wear all the hats: Sales, Marketing, Finance, IT, Operations. While it is possible to find joy in all these tasks (the thrill of a sell, the hum of a server, the glint of a spreadsheet anyone…?) there are some you will always despise.

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2. Not doing what you are best at

If you’re trudging through your tax return or fiddling for hours with Photoshop, you’re definitely not making best use of your time and you’re probably not making a great job of it either. Don’t run your business doing lots of stuff averagely; do less stuff, but outstandingly.

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3. Not staying flexible

Unless you live in a cave, you’ll know the two Truths of Domestic Existence: 1) you will one day, possibly quite soon, have need of a good plumber and 2) there is nothing harder to find than a good plumber.

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4. Working in it, not on it

What happens when you go on holiday or get ill? Do all gears grind to a halt? If so, you’re not running a business, you are a business. Diverting streams of repeat activity such as admin support or website maintenance through reliable freelance channels makes your business less vulnerable to disease, pestilence and man-flu.

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Hayley Conick is country manager for Elance in the UK and Ireland.

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