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Consider an item that costs $80 to produce that you can sell for $100, netting $20 which is a 20% profit margin. Say your input costs go up 20%, and due to inc
by quickthrowman 3y ago
Consider an item that costs $80 to produce that you can sell for $100, netting $20 which is a 20% profit margin.
Say your input costs go up 20%, and due to increased competition in your market segment, you can only raise your sell price by 10%. $80 times 1.2 is $96, and $100 times 1.1 is $110, netting $14 which is a 12.72% profit margin.
The price went up, but the margin went down, so you are incorrect.
- ahmeneeroe-v2 3y agocan you do the math but without the price increase to $110 and let us know how that margin compares to the 12.72% profit margin at $100?
- quickthrowman 3y agoIf I understand your question, you’re asking what the profit margin would be if the cost went up 20% from $80 to $96 while the sell price stays at $100. The profit margin would be 4%, $100-$96 leaves $4 of profit. 4/100=0.04, multiply that by 100 to get 4%. To maintain your previous profit margin if the cost to produce goes up by N%, your selling price must also go up by at least N% at the minimum. If sell price increase % is higher than cost increase %, your margin will expand. If the reverse is true, your margin will contract.
- likecarter 3y agoI assume we can all do the arithmetic. In the market, stocks will move based on price increases, since cost inputs are assumed to not move, or rarely move - COVID being an exception to the rule.