What's a reasonable profit margin?

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What's a reasonable profit margin?
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Stacey

Joined: 18 Jul 2005
Posts: 8380
Location: Kernow

Posted: Sun Mar 25, 07 4:12 pm Post subject: What's a reasonable profit margin?
I've been making the mistake of assuming that my hourly rate was my profit. I've now learned that I need to add something called a 'margin' What's a reasonable margin to add? Please don't say whatever the market can stand because that don't make no sense to the yokel granny to be brain that floats around in the primordial soup of my head

Nick

Joined: 02 Nov 2004
Posts: 34535
Location: Hereford

Posted: Sun Mar 25, 07 4:17 pm Post subject:
This will depend hugely on your product/market. I can offer you two examples, as illustration. Booker wholesale, and the corner shops they supply will be happy with making 5-10% margin on many lines. Lab manufacturers may make as much 80% margin. That is, the cost of an item may be �200, and the selling price is �1,000. So. You're probably in the middle somewhere.

Mary-Jane

Joined: 13 Jan 2005
Posts: 18397
Location: The Fishing Strumpet is from Ceredigion in West Wales

Posted: Sun Mar 25, 07 4:18 pm Post subject:

A simple way to calculate it is to work out the difference between the price received by you for your products and the total cost of producing them = your profit magin.

So if you sell 10 felted soaps for �15 and they cost �8 to produce (including your time) then your profit margin will be �7.

So you need to consider what would be a reasonable profit margin in your line of work. Are there any similar producers that you can ask?

dpack

Joined: 02 Jul 2005
Posts: 46209
Location: yes

Posted: Sun Mar 25, 07 4:26 pm Post subject:
i used to double labour costs and add 25 to 50% to materials and then add or subtract according to my workload this seemed to work in building / refurbishment very tricky equation until you have been at it a few years some firms just do cost plus but remember overheads and depreciation on plant ,and the cost of stockholding sorry not to be more help

Stacey

Joined: 18 Jul 2005
Posts: 8380
Location: Kernow

Posted: Sun Mar 25, 07 4:34 pm Post subject:
All very helpful, thanks I'll try to be brave and ask someone I know to be organised what they add. none of them noticed the 'granny to be' in the OP then

jema
Downsizer Moderator

Joined: 28 Oct 2004
Posts: 28233
Location: escaped from Swindon

Posted: Sun Mar 25, 07 4:35 pm Post subject:

A lot of it does come back to the market though.

Whatever you are producing there will be good times and lean times, if you sell at �10 when you could be selling the same quantityish at �12 then you will live to regret it later.

I know in my main business now, I have technically a good profit margin, but I am not about to cut prices, I spent a lot of time losing money or making low profits to get to this stage, and I can see the competition around the corner that might set me back again!

You need to make what you can, to survive the swings and roundabouts.

Penny Outskirts

Joined: 18 Sep 2005
Posts: 23385
Location: Planet, not on the....

Posted: Sun Mar 25, 07 5:04 pm Post subject:

Elasticity of demand.... or some such crap.

If you price something at �5 and sell 10 of them, you have �50
If you price them and �10 and sell 5, you still have �50, but with much less effort, and less materials and more profit. Anyone can be busy, but you need to make money too.

What you need to find is the ideal price, that people will be happy to pay, that makes you a reasonable amount of money for the time and materials you've put in.

Penny Outskirts

Joined: 18 Sep 2005
Posts: 23385
Location: Planet, not on the....

Posted: Sun Mar 25, 07 5:05 pm Post subject:
Granny to be Really... Excellent news!

Nick

Joined: 02 Nov 2004
Posts: 34535
Location: Hereford

Posted: Sun Mar 25, 07 5:07 pm Post subject:

Penny wrote:

Elasticity of demand.... or some such crap.

....

What you need to find is the ideal price, that people will be happy to pay, that makes you a reasonable amount of money for the time and materials you've put in.

Price elasticity is actually sound theory.

And as for the second part, especially for more unique items, eBay is a pretty good route to market. It's quick, cheap, a huge market and you don't have to sell below a given price.

Stacey

Joined: 18 Jul 2005
Posts: 8380
Location: Kernow

Posted: Sun Mar 25, 07 5:09 pm Post subject:
I can't seem to sell a thing on Ebay And Yes Penny, really

boisdevie1

Joined: 11 Aug 2006
Posts: 3897
Location: Lancaster

Posted: Sun Mar 25, 07 5:19 pm Post subject:
Profit margins and pricing. What are people prepared to pay? Do you have people offering what you offer? If so, what are their prices like? Sometimes it might be worth selectively upping the price to see if people will be prepared to pay it. Never undersell yourself.

sally_in_wales
Downsizer Moderator

Joined: 06 Mar 2005
Posts: 20809
Location: sunny wales

Posted: Sun Mar 25, 07 5:20 pm Post subject:
ooh, Granny Stacey! That is exciting, have you just found out and more importantly are they happy about it?

Stacey

Joined: 18 Jul 2005
Posts: 8380
Location: Kernow

Posted: Sun Mar 25, 07 6:14 pm Post subject:
Thanks - we found out this afternoon and we are all unblelievably chuffed

Fee

Joined: 21 Mar 2005
Posts: 15922
Location: Earth

Posted: Sun Mar 25, 07 6:22 pm Post subject:
Congrats Stacey

Mary-Jane

Joined: 13 Jan 2005
Posts: 18397
Location: The Fishing Strumpet is from Ceredigion in West Wales

Posted: Sun Mar 25, 07 6:50 pm Post subject:

Penny wrote:

Granny to be

Really...

Excellent news!

Oh sorry Stacey - durrr, it didn't register with me

Bloody marvellous news! Congrats

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