mathematical question

[Durien512]

ok guys i need help figuring out something here..
i am trying to incorporate this into a formula in a form


in the retail industry we all determine profitability based on gross margin % and $..

example

if an item cost $250 and you sell it for $599

you can take 250/599 = .417

which tells you that the reverse of that is the actual percentage margin you made.

now look at the logic behind it.

(((250/599)*100)*-1)+100 =58.26%
ideally thats a formula that we dont think of but in our heads thats how we calculate that.

now this formula that we all use (without realizing it) only works up to certain #s. If you start selling items extremely under cost your Gross Margin goes nuts.

Here is an example..

cost = 250
selling price=1

(((250/1)*100)*-1)+100=-24900%

now i am trying to analyze this and make more sense of it. a -24900% margin does not make much sense and this is why.

item A cost 250, sold for 599
item B cost 250, sold for 1


your profit amount for item A =$349
your profit amount for item B= -$249

therefore your Gross Margin $ profit is $100

now when you figure out you Gross Margin % it wont work using the formula since you are averaging (-24900 and 58.26).. it will show a negative margin when i fact you made money on this so its not negative..

any one?

 

[RV]

Not sure what's you after, however, it's rather common practice to "target" your margins.
What you normally do is to seperate negative margins from positive margins.
Makes sense?

RV

 

[wazz]

this is not my field so i could be way off base here, but if an item cost $250 and you sell it for $599, what if your first division is on the profit, i.e.

599-250=349
then
349/599=0.58263773
--------
1-250=-249
-249/599=-0.415692821
--------
(-0.415692821 + 0.58263773) / 2 = 0.0834724545

you get a positive result. but i don't know if that helps at all. (i like the separation idea though, even if i don't know what i'm doing...)

 

[hmongie]

hmmm.. I don't know about your formula. I think wazz is headed in the right direction.

Here goes:

Unit A price: $250
Unit A sold for $599

Unit B price: $250
Unit B sold for $1

Unit A calculations:
599-250=349 or a profit of $349
349/599=0.583 or approximately 58.3% of increase sales

Unit B calculations:
1-250=-249 or a loss of profit in the amount of $249
-249/250=-0.996 or a decrease of 99.6% of loss

Your margin should come into play after your sales. Your margin will help you determine what a graphical display of your company's saling structure. Such as the below.

In January item A increased sales by 58.3%.
In January item B had a decreased sales of 99.6%

The margin between the total sales is a negative 41.3% of loss profit.
Results tells corporate that the company is down 41.3% of their investment. Not good at all.

Hope that helps.

 

[Robert88]

What company was it? Remind me not to invest, LOL!!!!

 

[RV]

Results tells corporate that the company is down 41.3% of their investment. Not good at all.
QUOTE]

Not so, in fact the company made a net profit of $ 100
You should diminish between positive margins and negative margins if you want to review relative margins.

RV

 

[neileg]

You can't average ratios and get a valid figure. There's nothing wrong with the maths, it's just the concept that is wrong.

 

[Bat17]

To follow on from Neil this means you need to sum your buy/sell costs before doing the calculation to find percent.

HTH

Peter

 

[Durien512]

To follow on from Neil this means you need to sum your buy/sell costs before doing the calculation to find percent.

HTH

Peter

That correct...thats where my logic was off...
it is simpler to sum and them find the percentages..

thanks guys!