Link to the Show / Show Notes-4 Generations in the workplace
-Marketing math made simple
-Margin vs. Markup
Welcome back to the MBA Working Girl Podcast-Where Business Theory and the Real World Collide! This is your host and blog writer, Laura Adams.
MBA Essential Tip:
Many people get tripped up when they have to distinguish between a product's Margin and its Markup. I lay out a good example in the podcast, but here's a couple more to ponder:
1) Let's say you have a flooring company and are bidding on a commercial job. You determined that the cost of the carpet, freight, sales tax and labor will be $10,000. In this business your goal for commercial jobs is to get a 35% profit margin. How do you come up with the correct price? If you multiply $10,000 by 1.35 and bid the job at $13,500, you will not make a 35% margin. This is because you simply MarkedUp the cost 35%. Take a look at the math for a true 35% profit margin:
Cost / [1 - margin %] = Price
$10,000 / [1 - 0.35] = Price
$10,000 / 0.65 = Price
$15,385 = Price
2) Let's say your customer receives your bid from above, but says they only have $14,775 in their budget. If you do the job for this price, what profit margin would you make?
You can plug all the numbers into the formula used above. But here's an easier way to calculate this:
Revenue - Costs = Profit
$14,775 - $10,000 = $4,775
Then divide Profit by Revenue: $4,775 / $14,775 = 0.32 = 32%
So, if you're willing to accept a 32% margin, instead of 35% - you're in business!
"The trick is growing up without growing old." -Casey Stengel
Want to make the profit you need? It's simple - have a great product and price it correctly! This episode is about the very important (and sometimes confused) low-tech Marketing math that allows you to determine the profitability on anything you sell.
I'll also give you the scoop on how incredibly different the 4 generations that are working together are right now.
I always appreciate your comments and questions - send to laura@mbaworkinggirl.com
Do Good Work, Laura
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