Rekenen in centen in plaats van procenten: "You cannot bring percentages to the bank."

CHEATSHEET

Imagine you own a store and sell two products.

You sell the same Quantity, the same number of units of both.

One is a sustainable product, the customers pay you €4 for selling it and you pay the factory €2 per unit for supplying it.

The factory charges €1 for the other product. At what selling price would it be as profitable as the sustainable product? 

	Factory gets	Customer pays
Sustainable product	€ 2	€ 4
Other product	€ 1	€ ?

 Answer:

The answer is simple. It is based on counting money:

Sustainable product €4 Selling Price - €2 Buying Price = €2 contribution margin. (#Deckungsbeitrag db)

The product that is bought for €1 has to be sold for €1+ €2 contribution margin = €3 to result in the same net profit.

The math: Store Net Profit = € Margin per unit x Quantity sold - € Store Expenses

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Many stores use the following suboptimal percentage math:

Net Profit = Sales x (Gross Margin % - Expenses %)

The sustainable product has a margin % of 50% (€2/€4) and the other product would be considered equally profitable when sold with the same margin for €2 (€1/€2 = 50%)

In reality it is not equally profitable, it only generates half the cash flow because…..

“You cannot take percentages to the bank.” 

KEY: "Opportunity based costing": When weighing assortment options instead of comparing margin %s to expense %s or attempting to allocate expenses to SKU's the German Deckungsbeitrag framework considers "Opportunitieitskosten" of the relative Deckungbeitrag. 

 For the white paper see: www.profitperx.com