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Old 7th October 2010, 10:00 AM   #1
smm18951
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Default Required Dollar Amount Of Sales To Create Specific Profit At 60% Average Markup?

I decided to start a new small Internet site that sells 35 different items. The average markup of all 35 items is 60%. All the items have a very different cost that ranges from as little as $2.50 and as much as $35.00. I am trying to calculate the dollar amount required in sales to create the profit I need to 1000 dollars/month.

So basically I want to know how many sales ( in dollars ) is required to make my 1000 per month.

Is this even possible and is so what is the equation?
thanks to all

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Old 8th October 2010, 07:36 AM   #2
ArcSine
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It can easily be reduced to an equation, but the equation depends on the expected sales mix.

To illustrate (and just working with dollar margins instead markup %s for a moment) suppose I have two products, A and B, with unit margins of $5 and $20, respectively.

I could hit 1K a month by selling 40 As and 40 Bs; 20 As and 45 Bs; 60 As and 35 Bs, ...... and so on.

Your calculation of the 60% average markup across your whole product line assumes exactly one of each item. So you could derive a profit equation using the 60% average only if you assume your actual sales mix will also be 1 to 1 to 1 to.....etc. For any other sales mix you'll need to incorporate specific item markups, rather than the average.

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Old 11th October 2010, 11:25 AM   #3
phanio
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Another way to look at it is this. Try to understand what you think you are going sale in your mix - i.e. 10 of product a, 15 of product b, 5 of product c, and so on.

Then, take all of your costs - both directly related to your product and your overheads (selling, general, rent, marketing, etc) and your profit requirement. Once you have all your costs - then, you can divide your costs out based on your sales estimates.

The problem with all of these methods is that you will not know how much you can sell until you get out there and start selling them.

So, you might just do this. If your item is $2.50 - market it up 100% - to $5. Do this with all products (within reason - if a product is $100 - you might want to try to sell it for $200). Then, as you move forward and see what sells - then you can adjust your prices until you research our goal. Plus, it is always better to start higher on price and come down then doing it the other way.

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