If you have a job with a total cost of $237.79 and you wanted a net profit of 20% on this job what would your selling price need to be?

A. $285.35
B. $297.24

How many out there would say A?
How many out there would say B?

Net profit technically is revenue - all costs including as taxes, overhead, depreciation on trucks, etc. Don't know if your number includes that.

A. $285.35 = 237.79 * 1.20
B. $297.24 = 237.79 * 1.25

But Net Margin = profit / revenue.
Profit for A = 285.35 - 237.79 = 47.56
Profit for B = 297.24 - 237.79 = 59.45

Net Margin for A = 47.56 / 285.35 = 16.6%
Net Margin for B = 59.45 / 297.24 = 20%

[This message has been edited by dmattox (edited 12-16-2004).]

[This message has been edited by dmattox (edited 12-16-2004).]

The $237.79 includes all costs including overhead. There are no other costs.
My answer is B.

#B

The reason I posted this was I was talking to another guy who said that you multiply the net profit desired by the actual costs of the job.

$237.79 x .20 = $47.56
$237.79 + $47.56 = $285.35

I told him the correct method would be to take the desired net profit percent subtract that from 100% and divide your actual costs by this percentage.

100% - 20% = 80%
$237.79 / .80 = $297.24

So I thought I would post it to see how others would calculate this.

I think an easy way to explain it to him is that he is making profit 20% of his costs, you are making profit 20% of your revenue.

Good point. Thanks for the replies.

Thanks for the "new Math" lesson. Another contractor tried to explain this to me last year and I couldn't quite get it. After reading these posts,I started dividing instead of multiplying.

Our company has allways used method B.

I wasn't sure that the boss was doing it right and dug out some old college business management textbooks from the basement.

Both methods are correct, they are just different. I am now happy using method B.