specific examples aiming at 30%, 40% profit.
by ed mendlowitz
77 ways to wow!
there is always a conflict in trying to determine whether prices should be increased to make more money or decreased to create a greater demand so the business could make more money.
more: three ways to run a break-even analysis | the top 11 financial statement ratios | eight ways to value a family-owned business | are you ready for a co-owner to drop dead? | simple controls can prevent fraud | charity directors must take theft seriously
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this can be calculated using simple arithmetic based on the break-even analysis model and applying it to a guess of how your customers would react versus the potential to gain added business.
the calculations also require converting the amounts used from dollars to product units. the following charts show the effect of looking at units rather than dollars. notice the extreme differences between the results in dollars and units.
illustration: effect of price changes with 40% profit
decrease prices with 40% profit
| regular gross profit before price changes: | 40.00% | % increase needed in physical units sold to earn same $ amt. of gross profit as before price decrease | ||||||
| % decrease in price | new price per unit | $ amount of cost per unit | $ amount of gross profit | new gross profit % | $ sales needed to earn $400 gross profit | |||
| % increase in total $ sales permitted to earn same gross profit $ | # physical units that must be sold to earn $400 gross profit | |||||||
| 0.00% | $100.00 | $60.00 | $40.00 | 40.00% | $1,000.00 | 0.00% | 10.0 | 0.00% |
| 5.00% | $95.00 | $60.00 | $35.00 | 36.84% | $1,085.71 | 8.57% | 11.4 | 14.29% |
| 10.00% | $90.00 | $60.00 | $30.00 | 33.33% | $1,200.00 | 20.00% | 13.3 | 33.33% |
| 15.00% | $85.00 | $60.00 | $25.00 | 29.41% | $1,360.00 | 36.00% | 16.0 | 60.00% |
| 20.00% | $80.00 | $60.00 | $20.00 | 25.00% | $1,600.00 | 60.00% | 20.0 | 100.00% |
| 25.00% | $75.00 | $60.00 | $15.00 | 20.00% | $2,000.00 | 100.00% | 26.7 | 166.67% |
increase prices with 40% profit
| regular gross profit before price changes: | 40.00% | % decrease in physical units sold permitted to earn same $ amt. of gross profit as before price increase | ||||||
| % decrease in price | ||||||||
|
new price per unit |
$ amount of cost per unit | $ amount of gross profit | new gross profit % | $ sales needed to earn $400 gross profit | % decrease in total $ sales permitted to earn same gross profit $ | # physical units that must be sold to earn $400 gross profit | ||
| 0.00% | $100.00 | $60.00 | $40.00 | 40.00% | $1,000.00 | 0.00% | 10.0 | 0.00% |
| 5.00% | $105.00 | $60.00 | $45.00 | 42.86% | $933.33 | -6.67% | 8.9 | -11.11% |
| 10.00% | $110.00 | $60.00 | $50.00 | 45.45% | $880.00 | -12.00% | 8.0 | -20.00% |
| 15.00% | $115.00 | $60.00 | $55.00 | 47.83% | $836.36 | -16.36% | 7.3 | -27.27% |
| 20.00% | $120.00 | $60.00 | $60.00 | 50.00% | $800.00 | -20.00% | 6.7 | -33.33% |
| 25.00% | $125.00 | $60.00 | $65.00 | 52.00% | $769.23 | -23.08% | 6.2 | -38.46% |
illustration: effect of price changes with 30% profit
decrease prices with 30% profit
| regular gross profit before price changes: | 30.00% | |||||||
| % decrease in price | new price per unit | $ amount of cost per unit | $ amount of gross profit | new gross profit % | $ sales needed to earn $300 gross profit | % increase in total $ sales needed to earn same gross profit $ | # physical units that must be sold to earn $300 gross profit | % increase needed in physical units sold to earn same $ amt. of gross profit as before price decrease |
| 0.00% | $100.00 | $70.00 | $30.00 | 30.00% | $1,000.00 | 0.00% | 10.0 | 0.00% |
| 5.00% | $95.00 | $70.00 | $25.00 | 26.32% | $1,140.00 | 14.00% | 12.0 | 20.00% |
| 10.00% | $90.00 | $70.00 | $20.00 | 22.22% | $1,350.00 | 35.00% | 15.0 | 50.00% |
| 15.00% | $85.00 | $70.00 | $15.00 | 17.65% | $1,700.00 | 70.00% | 20.0 | 100.00% |
| 20.00% | $80.00 | $70.00 | $10.00 | 12.50% | $2,400.00 | 140.00% | 30.0 | 200.00% |
| 25.00% | $75.00 | $70.00 | $5.00 | 6.67% | $4,500.00 | 350.00% | 60.0 | 500.00% |
increase prices with 30% profit
| regular gross profit before price changes: | 30.00% | |||||||
| % increase in price | new price per unit | $ amount of cost per unit | $ amount of gross profit | new gross profit % | $ sales needed to earn $300 gross profit | % decrease in total $ sales permitted to earn same gross profit $ | # physical units that have to be sold to earn $300 gross profit | % decrease in physical units sold permitted to earn same $ amt. of gross profit as before price increase |
| 0.00% | $100.00 | $70.00 | $30.00 | 30.00% | $1,000.00 | 0.00% | 10.0 | 0.00% |
| 5.00% | $105.00 | $70.00 | $35.00 | 33.33% | $900.00 | -10.00% | 8.6 | -14.29% |
| 10.00% | $110.00 | $70.00 | $40.00 | 36.36% | $825.00 | -17.50% | 7.5 | -25.00% |
| 15.00% | $115.00 | $70.00 | $45.00 | 39.13% | $766.67 | -23.33% | 6.7 | -33.33% |
| 20.00% | $120.00 | $70.00 | $50.00 | 41.67% | $720.00 | -28.00% | 6.0 | -40.00% |
| 25.00% | $125.00 | $70.00 | $55.00 | 44.00% | $681.82 | -31.82% | 5.5 | -45.45% |