4d ago (edited) in General discussion
Don't lose your profits!!!
In any business you need to know your profit margin. How much do you want to make on each job, or sale of your product to be profitable.
In an ecommerce brand you may have the cost of product + Cost of fulfilment + profit margin = Total Cost to customer
In a service based business that would break down into Material + Labor + Profit Margin = Total Cost to Customer
When calculating Profit margin, please please please don't make this mistake or you'll lose money....
Example
Labor = $5000
Material = $5000
Random person: “So I want to make a 50% profit margin, so I'll multiply by 1.5 to get $15000”
This is wrong....
You have just calculated a ~33.3% margin....
Because we need a 50% margin on the Selling Price!
What you charge the customer!
50% profit margin means the profit is 50% of the original cost.
Let's clarify the difference between Profit and the Selling Price:
- Profit: The amount of money you gained.
- Selling Price: The cost of goods + delivery + the profit.
The real calculation
Labor = $5000
Material = $5000
Profit Margin of 50%, -------> $10000/.5 = $20000
__________________________________
This $20,000 is known as the Selling Price
That $10,000 is your profit margin. Now its your responsibility to protect this at all costs and maintain your expenses to perform the job quoted.
Next I will teach you how to calculate the "True Cost of Labor" with a pdf you can download to find out your labor rate in whatever business you operate.
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Don't lose your profits!!!
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