I'm not Math major or a Math champ but just a guy doing a retail store business. Would like to know how much the sales volume has to increase when price is reduced by a certain % keeping the same profit if my margin is 5%,10% and 15%. I got the file from a old page which had no explanation how they figures came up. If someone can explain me the concept I would like to do this in excel.
Let's start with a simple example:
1000 (sales) @ 30% (margin) = 300 (revenue)
1250 (sales) @ 24% (margin) = 300 (revenue)
Sooooooo...in order to get SAME revenue:
if margin=30% and is reduced by 6% (30% - 24%),
then sales must increase by 25% (1000 * 1.25 = 1250).
Go check above in your attachment:
you'll see above result clearly in 3rd column, 3rd row.....
Formula is quite simple:
c = current margin (30)
r = reduction to margin (6)
i = increase in sales (?)
i = c / (c - r) - 1
So (above example):
i = 30 / (30 - 6) - 1
i = 30/24 - 1
i = 1.25 - 1
i = .25 or 25%
If you want result to come out as 25% instead of .25:
i = 100[c / (c - r) - 1]
Let me know if you need more info...hope that helps...