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Resolved Question

What profit margin percentage would one need to make to prosper in a business?


I know it would depend on many factors - i.e. overheads/expenses, how many staff in the business, etc. But if this is a one, maximum two man show to start with and very few overheads if any, what would be the acceptable mark up percentage be?

It is true, looking at the answers (and Thanks Tbone, you are spot on), it is like asking "How long is a piece of string" There are factors to look at. I am enquiring for a friend, just slapping idea's around for now. This project will take a while to lauch.
67 mths ago

Best Answer

It depends entirely on what kind of business you're starting. Service businesses, which effectively sell time, normally need higher margins. This is because they are inherently limited in their ability to service clients - there are only so many hours in a day. So a hairdresser can only cut so many people's hair in 8 or 10 hours. This is very different from a soap manufacturer, who can make a lot more soap from one day to the next, but only does so when they get orders. This kind of "volume" business can (and will) have lower margins but larger cashflows. If you think about it, it doesn't matter much if you earn 10% of a million Rand or 1% of 10 million rand - in the end you're making 100 grand either way. I will say this though - high margin businesses selling value-added services and skills are normally cushier than low margin businesses - but they are also more brittle. Everyone needs soap, so if you make it cheaply and well you will always have customers. You may not make a fortune but you will eat. However when times are tough people stop going to the hairdresser as often, or even at all, so you can suddenly be without clients completely. As for how high your margin needs to be - you need to assess your business model. Take the most amount of trade you can do in a month, figure out what it will cost you and then add your target salary on top. That will give you an idea of how much you need to "make" each month, and you can then add that margin to your day to day "costs".

67 mths ago

Answers -

I'm no business fundi, but I should think 30% - 50%. You have to give value to your own time and expertise as well. Many people starting out in business seem to forget this.

67 mths ago

There is certainly not enough information in your question to answer it but you are looking at "profit" from the wrong angle altogether. The selling price of your service or good is dependant upon its cost, the cost of sales, tax before profit, shareholder dividend and so on. There is a lot to consider. I recommend strongly that you, at the very least, invest in "Business Plans for Dummies" (which will march you through all the required step to start up a business) or that you attend a Small Business Course at a reputable institution (like WBS, GIBS or Stellenbosch, depending on where you are). I say again: at the very least, draw up a business plan and have your bank look at it. The business plan will contain a formula to calculate break-even and, by implication, an analysis of all costs and, therefore, profits. Good luck

67 mths ago

I would just love to advise you, but to be honest with you, I am useless, sorry. Good luck in whatever you do!

67 mths ago

Good advice from T-Bone. Also remember not to take a product or service into the marketplace at too low a price. Firstly you will become know as being "cheap" and secondly it will be difficult to raise your margins later. Rather build from a smaller but more solid base with a good profit margin. Remember the 80/20% principal.

67 mths ago

Hmmm, OK, this is not easy to answer, and honestly I think T-bone and the first responce was the best. 30%-50% is a good target, but it depends on the amount of product you sell, the selling price of the product. If you sell one R200k car per week at a 5% profit, you will have a income of R40k/month. Selling oranges @R15 per bag with a included profit of 50%, you will have to sell 1,350 bags/week or 5,400 bags/month to reach ±R40,500/month.

67 mths ago

can vary greatly depending oin the Products or services you sell. but the rule of thumb is 100% markup on gross. ie if you buy it in at R50 sell it at R100 or more. if its still in need and easy to get hold of you have a good business idea. if its something thats high volume like a liquour store the markups are low like 5%-15%. but this doesnot apply to teh big grocers who make between 50% - 300% on products depending where tey get it from and by buying it in MASSIVE bulk. tell us your product i can give you a better indication

67 mths ago

I agree with t-Bone I would say anything between 40% to 100% depends on the product as well

67 mths ago

I think what you really want to know at this point is what your break even price should be for your product/service. You arrive at a break even price by adding all expenses (staff, overheads, manufacturing costs, advertising etc) and deviding it by the number of products you are likely to sell. The only tough thing to estimate here is the amount of products you will sell. Draft a budget for at least 12 months (not that difficult!) and look at various scenarios (high & low selling). This will give you an idea about what your price should be for your product and wether the venture is realistic. Always consider the price per product of other suppliers of your product, as well as their quality and target market. Best of luck :-)

67 mths ago

it depends what you sell, what your turnover is, slow or fast moving goods. Rising cost also influence your profit margins. It really differ from company to company and product.

67 mths ago

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