margin is 100*(revenue-cost)/revenue, or in whitey’s example:
100*(60-50)/60=16.67%
Thank you for correcting my typo. I fixed it.
Margin and markup are two different things. Whitey’s equation is correct for margin, piter is right for markup.
Someone who objects to markups on parts would probably have a change of opinion if they had to run a shop for a while and had to sit down every month and start cutting checks.
I’d like to see the same outrage applied to taxes and regulations (generally leading to fees; a.k.a. taxes with a different name) applied by every level of government.
If one doesn’t like the price quoted by a shop then the customer can freely leave and go elsewhere. One can’t turn their back on the IRS and state tax commissions.
Whitey, I don’t care. Profit as a percentage is NOT markup as a percentage. Markup as a percentage is NOT profit as a percentage. I’m think I’m right, I think you’re WRONG, and we agree that you disagree.
I know everyone on this board has done every conceivable job, business to business, blah blah blah.
Markup as a percentage
* Cost x (Markup + 1) = Sale price
or solved for Markup = (Sale price / Cost) - 1
* Assume the sale price is $1.99 and the cost is $1.40
<b>Markup = ($1.99 / 1.40) - 1 = 42% </b>
* To convert from markup to profit margin:
Sale price - Cost = Sale price x Profit margin
Margin = 1 - (1 / (Markup + 1))
or Margin= Markup/(Markup + 1)
Margin = 1 - (1 / (1 + .42)) = 29.5%
Hmm. One dollar amount (59 cents), two entirely different percentages.
“AL5000 July 25 Report
Actually none of this is profit, it is margin. Profit is not measured on the individual part or job, it is figured at the end of a period (monthly for example), where you take into account rents, salaries, utilities etc.”
You forgot gambling debts and boat payments. We’re discussing a single Platonic transaction here, not how an accountant books it.
Once again, piter is playing another game from the book “Games People Play” by Eric Berne. This time he is playing “NIGYSOB or Now I’ve Got You, You SOB”. This game is played a lot by people with very low self esteem.
piter, your formulas are not complete. You are expressing your result in a percentage where the formula is solving for a number. You need to multiply the whole formula by 100 to convert to a percentage. OK, now that is an example of me playing NIGYSOB.
For most people who do not run a business, margin and markup seems like the same thing. Unless you are a business major, a businessman, or just someone playing gotcha and perusing Wikipedia for fodder, you probably don’t really care.
Nitpicking about the definition of margin or markup is not what the OP asked for. The OP just wanted to know what was fair.
Thanks, Keith. I was resisting the urge to respond.
Your welcome. I hope I didn’t cross the line here and the post gets deleted. piter is not the only one who plays this game around here. In fact, I may have played on one or more occasions myself.
“For most people who do not run a business, margin and markup seems like the same thing.”
So you’re saying that margin and markup are not the same thing? Or that a previous poster didn’t run a business? Which game is this?
“You need to multiply the whole formula by 100 to convert to a percentage.”
You’re going to have to be more clear (is that in the book?). How is 42% not equal to .42 ?
“Professor, I see that you have marked some of my answers wrong. I have to warn you that I am going to tell people that you are just playing a game called “Your Answer Is Wrong” from Eric Berne’s book Games People Play.”
piter, sorry I hurt your feelings. Do you actually want me to respond to each of your questions above? I can, but I think this game has gone on long enough.
That’s an interesting game you’re playing, one worthy of the good Dr. Berne: TGHGOLE, or “This Game Has Gone On Long Enough.” Well played. You may now pick up your jacks and toddle along.
“Do you actually want me to respond to each of your questions above?”
I believe the use of the question mark ("?") answers your question. You’re playing the “Oh, Sputter, Sputter, I’ll Play The Games People Play Card” game (OSSIPTGPPC).
Choosing not to answer is itself an answer. Or not.
To paraphrase you (the TPY game) “An excursus on Eric Berne’s Transactional Analyis is not what the OP asked for.” Yet YSI (You Started It).
Where did you get the idea you hurt my feelings? I don’t think we are that close that we do things feelings-related. You may be reading something you want to see into what I wrote.
Annoying.
“So you’re saying that margin and markup are not the same thing? Or that a previous poster didn’t run a business? Which game is this?”
Most people would not know the difference or care. This has nothing to do with previous posters.
“You’re going to have to be more clear (is that in the book?). How is 42% not equal to .42 ?”
Not in Eric Berne’s book, but yes, the x100 for conversion of a decimal to percentage is in any math book. Again that was just getting nit-picky, I usually overlook things like that because I know what the poster meant. But .42 does equal 42%.
“Professor, I see that you have marked some of my answers wrong. I have to warn you that I am going to tell people that you are just playing a game called “Your Answer Is Wrong” from Eric Berne’s book Games People Play.”
That game and the rest you used in the above post are not in this book. You like references so I supplied one. There are several other books on transactional analysis and the authors use different names for the same games, and even add different games, maybe you are referring to one of these books.
Jeeze. No wonder so many OPs never come back. Who cares if the it’s the markup, the margin, the discount from the parts supplier, of the PBIT. The man only asked of the price was reasonable based on a price he’d seen on the internet.
The initial responses were “dead on”. Prices vary, for a number of reasons it’s unrealistic to compare the price the shop charged with the NAPA online price, and, bottom line, the price was fair.
End of story.
You’re right, MB, the most important point of this thread is that acceptable pricing is not determined by the percentage of the profit margin. It is determined by supply, demand, and competition. If the price you paid is comparable to what you would pay at another garage, the price is fair.