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Price Formula Help

BCG Case Interview McKinsey
Recent activity on Dec 21, 2018
1 Answer
1.7 k Views
Anonymous A asked on Dec 21, 2018

Hi there,

Does anyone know the formula to workout what price to achieve a desired profit margin, if only the total cost and profit margin are given?

E.g. Fixed Costs: £10,000 Variable Costs: £200 Desired Profit Margin: 30%

I've seen elswhere online this formula: Cost/(1- Desired Profit Margin). But I'm unsure if "Cost" in this formula refers to Variable Costs, Fixed Costs or Total Costs? I'm aslo unsure whether I need to know the sales volume or not.

Many thanks!

I want to be notified about updates regarding this question via email

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Vlad
Expert
 replied on Dec 21, 2018
McKinsey / Accenture Alum / Got all BIG3 offers / Harvard Business School

Hi,

I don't think you can not solve it without knowing the quantity or revenue.

You could solve it however if 30% was the gross margin.

Best,

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