The method behind the calculation
Assumptions and limits
The result is contribution after the entered unit costs, not company net profit. Target pricing accounts for both commission and target margin as shares of sales. Their sum must stay below 100%. The chart shows contribution as the discount changes.
Follow the example calculation.
With product cost 100, other costs 15, list price 180, a 10% discount and 8% commission, discounted sales are 162. Commission is 12.96, unit contribution is 34.04 and contribution margin is about 21.01%. A 25% target margin requires a list price of about 190.71.
Frequently asked questions
Are margin and markup the same?
No. Here, margin divides contribution by discounted sales; markup divides it by total unit cost. The same contribution of 34.04 gives about 21.01% margin and 29.60% markup in this example.
What is the commission based on?
Commission is calculated on the discounted selling amount. A fixed transaction charge can be included in other cost per unit. Contracts that use a different commission base require separate treatment.
Is this the company’s net profit?
No. Only entered costs and commission are deducted. Omitted rent, payroll, finance costs and taxes are not included. A negative result means the sale does not cover the entered costs.
Related sources
Inputs are processed on this device. Example figures are not quotes or live market prices.