There's a new calculator on the Food Methods website that enables food entrepreneurs to arrive at a suggested price when they know their cost and desired percent margin. The calculator is located here: http://www.foodmethods.com/cost-margin-price-calculator
In accounting terms, the difference between cost and selling price is called "gross margin" (it is also sometimes called "gross profit"). The term, "percent margin" is gross margin as a percent of selling price. For example, if we determine the cost of our product to be $2.13 per unit and we sell our product for $3.09 per unit, the percent margin is 31%. We calculate gross margin this way: 3.09 - 2.13 = 0.96 and percent margin this way: 0.96 / 3.09 = 0.31 or 31%.
This is all well and good, but frequently food entrepreneurs need to suggest a price from cost and percent margin. Suppose we want to see what the price will be when our desired margin percent is, say, 35%. We could use this formula: Price = Cost / (1 -% Margin). Or we could use the new Food Methods Cost-Margin-Price calculator.
Simply enter the cost and desired percent margin and click the "Calculate" button. It's that easy.
We have created this calculator in such a way to reflect a common three-tier scenario in the food business where the manufacturer sells to a distributor and the distributor sells to the retailer. Each party in the chain receives a gross margin when they sell to the next party.
Use the calculator to determine a suggested retail price by entering the manufacturer's cost, and a percent margin for each party. Click "calculate" and you will see the price at which each party sells to the next.
The calculator is completely free of charge to use and can be helpful when exploring various scenarios.