# Establishing a minimum PM for wholesale

D

#### DJJ

I am a programmer working for a small company that does both retail and
wholesale (I am not an accountant). The primary business is retail but
future growth will be in wholesale.

I am trying to establish a minimum profit margin on wholesale merchandise.
I have three years history of retail sales and product costs which to
calculate an average PM for retail. The goal for next year is for wholesale
to account for 50% of total sales. Right now it is around 25% (1 year
history only). We expect retail sales to remain flat

Is there a formula I could use to calculate to minimum wholesale PM based on
this information?

S

#### Steve

I am a programmer working for a small company that does both retail and
wholesale (I am not an accountant). The primary business is retail but
future growth will be in wholesale.

I am trying to establish a minimum profit margin on wholesale merchandise.
I have three years history of retail sales and product costs which to
calculate an average PM for retail. The goal for next year is for wholesale
to account for 50% of total sales. Right now it is around 25% (1 year
history only). We expect retail sales to remain flat

Is there a formula I could use to calculate to minimum wholesale PM based on
this information?

Do you mean the minimum wholesale PM for same amount of sales and profits?

--

D

#### DJJ

Steve said:
Do you mean the minimum wholesale PM for same amount of sales and profits?
I would be interested in applying a formula to the same amount of sales and
profit as well as future sales goals but the same amount of sales and profit
would be a good beginning.

The retail part of the business is currently financing the wholesale part
but future growth depends on the wholesale because the local retail market
has been saturated and the cost of expanding the retail elsewhere is
prohibitive. The current PM on wholesale is about 50% but this is maybe too
high for the market so the minimum PM would be like a safety valve while a
realistic understanding of the market is achieved.

J

#### John

DJJ said:
I would be interested in applying a formula to the same amount of sales and
profit as well as future sales goals but the same amount of sales and profit
would be a good beginning.

The retail part of the business is currently financing the wholesale part
but future growth depends on the wholesale because the local retail market
has been saturated and the cost of expanding the retail elsewhere is
prohibitive. The current PM on wholesale is about 50% but this is maybe too
high for the market so the minimum PM would be like a safety valve while a
realistic understanding of the market is achieved.
I think you need more than gross profit margins to determine a
breakeven point or "safety valve" minimum profit for a division or
product line. There are direct and indirect costs that need to be
allocated first to determine the individual profit components on the
whole company.

D

#### DJJ

John said:
I think you need more than gross profit margins to determine a
breakeven point or "safety valve" minimum profit for a division or
product line. There are direct and indirect costs that need to be
allocated first to determine the individual profit components on the
whole company.
If the company is running a net profit of about 2% over the last 3 years
would that be enough information to get some very general numbers?

J

#### John

DJJ said:
If the company is running a net profit of about 2% over the last 3 years
would that be enough information to get some very general numbers?
No. An important concept for product line or division profitability is
the allocation of direct and indirect costs to the respective revenue
stream, i.e. "wholesale" and retail sales. This is a cost accounting
type question so your best option may be to talk with someone in the
Accounting Dept.

B

#### Brian

Right now you can take your income/total sales to find your profit
margin. If you know what the margin is, there is a formula to help you
predict volume. You did not leave enough info...

You should make a prob chart that list all the probable outcomes for
the next year. Use the chart to find out how much you will earn based
on these probabilities. The best outcome should be your target;

ie
Prob volume price cost profit
10% 1 \$100
20% 2 \$80
30% 4 75
32% 5 65
8% 6 60