Project Pricing – Margin
By Ray Myers, Jr., PMP
According to the businessdictionary.com, margin is defined to be: the difference between the cost price and the selling price of a product. In other words, margin is the profit earned on a business transaction.
Margin is usually measured as a percentage of the selling price. Thus the project manager might say, “We earned 30% margin on this project.”
There are 2 margin calculation formulas that every project manger involved with project pricing should know.
Use Margin to Calculate Sell Price
Use this formula to calculate the selling price of a product or service when the cost and desired margin is known. For the purpose of this example, assume the hourly cost is $100 and you want to calculate a selling price with 30% margin.
Sell Price = Cost / (1 – Margin)
Sell Price = $100 / (1 – .30) = $142.85 per hour
Calculate Profit in Terms of Margin
Use this formula to determine the profit margin you earned on a project when the project cost and sell price is known. Assume that your project cost $700 and you sent a $1,000 invoice to your client. What was your profit margin?
Margin = (Sell Price – Cost) / Sell Price
Margin = ($1,000 – $700) / $1,000 = 30%
About the Author: Ray Myers, Jr. is a PMP certified project manager with over 2o years experience planning and managing technology projects. Contact Ray at www.pmservicesnw.com
Article source: www.pmservicesnw.com
