Download presentation

Presentation is loading. Please wait.

Published byKatie Tonkinson Modified over 3 years ago

1
Remember the Markup on Price. Mp aka Gross Profit Margin aka Return on a Dollar of Sales aka P-V Ratio Ted Mitchell

2
Definitions of Mp are If I ask you for a definition of the Markup on Price What do you remember as the equation?

3
Definitions of Markup on Price, Mp, are Mp = (P-V)/P where dollar profit/unit = P-V Mp = 1-(V/P) Mp = Mv/(1-Mv) Mp = G/R where G = Mp(R) Mp = ((P-V)Q)/P(Q) where Mp = (P-V)/P Where G = gross profit. R= sales revenue, VQ = COGS = cost of goods sold, P= selling price per unit sold, Q= quantity sold, V=variable cost per unit,

4
How do we use Mp? 1) For Predicting the gross profit, G, with a forecasted revenue, R*, knowing the normal and expected Markup on Price, Mp G = Mp x R* 2) Calculating the selling price, P, knowing the normal and expected variable cost per unit, the normal and fair, Mp, P = V/(1 – Mp)

5
How do we interpret Mp? Mp is a measure of the average rate of efficiency or effectiveness of the marketing department converting Revenue into the Gross Profit In Setting the selling price, Mp, is the Profit Returned by a dollar of sales and it is a popular way to rate the desirability of the market

6
The Roots of Mp are 1) It is a cost-based method for Setting the selling based on the equation for Gross Profit G = P(Q) – V(Q) P = V + G/Q 2) Breakeven Price, BEP, is where G = 0 BEP = V 3) Setting the selling price, P, by defining the gross profit it must bring in G = Mp x R P = V + Mp(R)/Q where R = P(Q) P = V/(1 – Mp)

7
The Virtues are 1) Simple for retailer’s to calculate 2) Fair: passes cost increases in variable costs (COGS) to the customer 3) Basis for Industry stability given similar cost structures 4) Guarantees a profit in normal, fair and expected times

8
The Weaknesses of Mp are 1) assumes that forecasted revenue, R*, is independent of the chosen selling price. 2) it is not fair in that it leads to passing a additional percentage of the costs to the customer for covering normal, fair and expected profit. 3) it leads to implicit price collusion

9
Remember the Markup on Price, Mp?

Similar presentations

OK

Chapter 18 Price Setting in the Business World. How are prices set by business people? Costs provide a price floor. See what substitute products are priced.

Chapter 18 Price Setting in the Business World. How are prices set by business people? Costs provide a price floor. See what substitute products are priced.

© 2017 SlidePlayer.com Inc.

All rights reserved.

Ads by Google

Ppt on nature and human quotes Ppt on power grid failure Ppt on modern technology in education Ppt on first conditional pdf Ppt on waves tides and ocean currents images Ppt on girl child death in india Ppt on search engine optimisation Ppt on indian power grid system Ppt on central limit theorem calculator Esi ms ppt online