Setting the right selling price for your inventory can be the difference between bringing in customers and getting calls from debt collectors. One way to set your selling price is by adjusting your cost by your target profit margin. That way, a specified percentage of each dollar of sales represents profit over the cost of the good sold. For example, if you set a target profit margin of 25 percent, 25 cents of every dollar of sales gives you profits.
Step 1
Divide your target profit margin by 100 to convert it from a decimal to a percentage. For example, if your target profit margin is 25 percent, divide 25 by 100 to get 0.25.
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Step 2
Subtract the result from 1 to figure the portion of the selling price that equals your cost. For this example, subtract 0.25 from 1 to get 0.75.
Step 3
Divide your cost by the result to figure the selling price based on your target profit margin. Finishing this example, if the item costs $3 to manufacture plus overhead, divide $3 by 0.75 to find your selling price equals $4.
Tip
When determining your desired profit margin, make sure to add in your costs besides the price you pay for the goods, such as overhead. For example, if you have a brick and mortar store, you'll have higher overhead than if you have an internet-based company.
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