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# A Division of the Oklahoma Department of Commerce

Price changes and their impact on profits:
Question: How much "gross profit" is left in your business after the direct costs of the products / services sold are paid? For example ... Company ABC Profit & Loss Statement
% of Sales Step 1 Enter

Product Cost Mark-up % \$0.00 \$0.00 #DIV/0!

Step 2 Enter

Price Gross Profit
48.1% 51.9%

Net Sales \$374,400 less CoGS♠ 180,000 = Gross Profit \$194,400
(Remember: Price x Quantity = Sales)

Gross Profit Rate

Step 3 Enter

Discount %

% #VALUE! #VALUE! #VALUE! #VALUE!

The remaining \$194.4 thousand in gross profit must be enough to cover company overhead, debt service, rewards for ownership and still retain a few dollars for the business. Gross profit is the first profit measure for many companies.
Given the above example, the "rate" of gross profit equals 51.9%. Now, if prices were lowered by a 40% discount to "stimulate" sales, the same volume of business would return fewer gross profit dollars because the "rate" of gross profit falls to 19.9%. Note: cost of goods sold remain unchanged. The question becomes, how much more business do you need at the lower gross profit rate to keep the \$194,400 level of gross profit ? Step 1. Enter product costs of \$180,000. Step 2. Enter mark-up at 108.

Discount Price New Gross Profit New Gross Profit Rate Required Increase in Sales \$

Increase in Sales %
Gross Profit \$ at the New Rate

#######
#VALUE!

Price increases and their impact on profits:
When merchants are asked about price increases, their response is often, "Oh, we'll lose business if we raise prices. Okay just how much business can you lose with a price increase and still keep Enter Price Increase the "gross profit" goal? Remember that's the goal. New Price A price increase raises gross profit rates all other things remaining the same. For Gross Profit example, a 8% increase in the above example raises the gross profit rate to Gross Profit Rate 55.5%. At that rate, sales could fall by 6.4% and still hold the gross profit goal of Sales Volume to \$194.4 thousand. Hold Gross Profit \$ If your company sold widgets for \$19.99, would you really lose 6.4% of the Percent Sales Can customers with a price of \$21.59? Decline Gross Profit \$ at the New Rate

The program calculates net sales and gross profit. Notice the gross profit rate is 51.9%
Step 3. Enter a discount of 40%.

The program calculates the increase in sales (161.3%) required to hold gross profit dollars at \$194.4 thousand with the lower gross profit rate.

Cost of Goods Sold

00 \$0.00 #DIV/0! #DIV/0! #DIV/0! #DIV/0! .\$0.