Supplier price increase: what it does to your margin
Enter what one item costs you, what you sell it for, and the supplier increase. You get the three ways to respond, each with its price: hold the price and absorb it, keep your margin percentage, or keep your profit per unit.
The formulas
With cost in B2, sell price in C2 and the increase as a percentage in D2:
New cost:
=B2*(1+D2)Margin if you hold the price:
=(C2-B2*(1+D2))/C2Sell price that keeps your margin percentage. Margin today is (C2-B2)/C2, so:
=B2*(1+D2)/(1-(C2-B2)/C2)Sell price that keeps your profit per unit:
=C2+B2*D2Extra volume needed to earn the same gross profit at the old price:
=(C2-B2)/(C2-B2*(1+D2))-1Worked example: a $40.00 item sold at $60.00
Margin today is 33.3%. After a 6% cost increase the item costs $42.40. Hold the price and margin falls to 29.3%, and you need 13.6% more units to earn the same gross profit. The table runs the same item through other increases.
| Cost increase | New cost | Margin at $60.00 | Price to keep margin % | Price to keep $ per unit | Extra volume at $60.00 |
|---|---|---|---|---|---|
| +2% | $40.80 | 32.0% | $61.20 | $60.80 | +4.2% |
| +4% | $41.60 | 30.7% | $62.40 | $61.60 | +8.7% |
| +6% | $42.40 | 29.3% | $63.60 | $62.40 | +13.6% |
| +8% | $43.20 | 28.0% | $64.80 | $63.20 | +19.0% |
| +10% | $44.00 | 26.7% | $66.00 | $64.00 | +25.0% |
The rule that falls out of the algebra
To keep your margin percentage, your price has to rise by exactly the same percentage as your cost: a 6% cost increase means a 6% price increase. To keep your profit per unit, the price only has to rise by the cost increase in money, which is a smaller percentage (+4.0% here). Most businesses land somewhere between the two, line by line.
Before you reprice, find out which lines actually moved. A free price list compare tool lists every increase on a new supplier list in one pass.
Pricecheck takes the supplier's email as it arrives, PDF included, compares it with the last version and sends back only the lines that moved. $49/mo, first month free for early signups. No payment now.