Home‎ > ‎Definitions‎ > ‎

Profit Margin

The profit margin is the Gross Margin Percentage. This is calculated based on the sale price of the item, subtracting the cost of the item, commissions and fees - ( (revenue - costs) / revenue) * 100)

Using a bit of algebra you can figure out what the price should be if you want to end up with a certain profit margin:
 
SalePrice - (SalePrice * CommissionRate) - CostPrice = CostPrice * ProfitMargin
 
For example: The item cost is $100 and Amazon is taking a 15% commission and you want a 25% profit margin, so you need to know the price to sell it on Amazon.
 
CostPrice = $100
ProfitMargin = 25% = .25
CommissionRate = 15% = .15
 
We need to solve for the SalePrice:
 
(SalePrice - (SalePrice * .15)) - 100 = 100 * .25
 
(SalePrice - (SalePrice * .15)) - 100 = 25
 
(SalePrice - (SalePrice * .15)) - 100 = 25 + 100
 
(SalePrice - (SalePrice * .15)) = 125
 
SalePrice - 15/100 SalePrice = 125
 
100/100 SalePrice - 15/100 SalePrice = 125
 
85/100 SalePrice = 125
 
85 SalePrice = 125 * 100
 
SalePrice = 12500 / 85
 
SalePrice = $147.05
 
You will need to add 47.05 to the cost in order to get a profit margin of 25%, considering the commission in this example.
 
 
Comments