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Target Margin Pricing Formula:
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Target margin pricing is a strategic approach where the selling price is determined based on the desired profit margin percentage. This method ensures that businesses achieve their target profitability while covering all costs associated with the product or service.
The calculator uses the target margin pricing formula:
Where:
Explanation: The formula calculates the selling price needed to achieve a specific profit margin percentage. The margin is converted from percentage to decimal form for the calculation.
Details: Accurate price calculation is essential for business profitability, competitive positioning, and sustainable growth. It helps businesses set prices that cover costs while generating desired profit levels.
Tips: Enter the cost in your local currency and the desired margin percentage. The margin must be between 0% and 100% (exclusive of 100%). All values must be positive numbers.
Q1: What is the difference between margin and markup?
A: Margin is the percentage of profit based on the selling price, while markup is the percentage added to the cost price to determine the selling price.
Q2: Can I use this calculator for services?
A: Yes, this calculator works for both products and services. Simply input your cost and desired margin to calculate the appropriate price.
Q3: What if my margin is 0%?
A: A 0% margin means you're selling at cost price with no profit. The calculated price will equal your cost.
Q4: Why can't I set margin to 100%?
A: A 100% margin would require the cost to be zero, which is mathematically impossible in this calculation. The margin must be less than 100%.
Q5: How do I account for additional expenses?
A: Include all relevant costs (materials, labor, overhead) in your cost calculation before using this calculator to ensure accurate pricing.