How to set prices, setting Gross Profit Margins

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How to set a price to the correct Gross profit %

To set a price to the correct gross profit margin is quite a simple task once you understand the basics.

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You will need to decide the gross profit margin % you require to make on the item and the cost price excluding any VAT per unit.

Let's say you want to sell a clock, you buy the clocks in batches of 10 and each batch costs you £30.00 excluding VAT.

To cover overheads and make a living you need to make a gross profit of 60% on each clock.

Firstly you divide £30 by 10 to find the cost price to you per clock that's £3.00.  Now you have the two elements you need to set your selling price.

You know you need to make 60% G.P. therefore your cost price price must make up the other 40% of your total price net of VAT.

You next divide £3 by 40 which will give you 1% of your selling price before VAT is added.

So £3 divided by 40 gives a result of 7.5 pence, which you now know is 1% of your selling price before any VAT is added.

The next thing to do is to times 7.5p by 100 to find your selling price 100 X 7.5 = £7.50.

Now if you need to add VAT to that price you time is by 1.2 which gives a full selling price including VAT of £9.00.

You will then make £4.50 on every clock you sell.

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