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Week 12: Profitability and Pricing 3 - Margins and Profits - Coggle Diagram
Week 12: Profitability and Pricing 3 -
Margins and Profits
Margin
Unit Margin ($)
= Selling price per unit ($) - Cost per unit ($)
Margin (%)
= Unit Margin/ Selling price per unit
Average sales margin (%)
for selling
multiple products
= (total sales - total costs)/ total sales
example:
page 4
Markup
Markup (%)
= (Selling price - Cost price)/ Cost price
typically used in
retail industry
markdown
:
% of selling price
during promotions
Channel Margins (
page 6
)
Margin pricing
Selling price = Item cost/ (1 - Margin)
(working forward)
example: page 7 and 8
Cost = Selling price x (1 - Margin)
(working backward)
Channel Price
formula:
page 9
Costs
Total Cost = Variable Costs + Fixed Cost
Variable cost = Variable cost per unit x Quantity
Breakeven point
represents the revenue or units required to cover total costs (diagram:
page 11
)
Breakeven
only possible if
P > Variable costs
profit at breakeven is 0 (when
Total Revenue = Total Costs
)
Breakeven Volume (
quantity
)
at breakeven:
Fixed Costs
= quantity sold x (Selling price - Variable cost per unit) =>
Breakeven volume (quantity)
= Fixed Costs/ Contribution per unit
Breakeven Revenue
= Fixed Costs/ Contribution Margin (%)
advantages and disadvantages (
p.17
)
Contribution metrics
Contribution per unit
= Selling price per unit - Variable cost per unit
Contribution margin (%)
= Contribution per unit/ Selling price per unit
unit sold > variable costs
=> contribution to cover the fixed costs => profit when all
fixed costs
are covered (
breakeven analysis
)
Targeted
Target volume (#)
= (
Fixed costs + Profits
)/ Contribution per unit
Target Revenue
= (
Fixed costs + Profits
)/ Contribution margin (%)