Calc'ing profift - what's the right way.

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4 comments

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    Fernando Mingo Jozami (Edited )

    Hi John,

    Read the AHPP 15th edition just to be sure. It explains everything the right way.

    The actual formula to calculate the Targeted Net Profit Multiplier is as follows:

    If your Targeted Net profit is 25% then:

    Break Even Multiplier / 0.75 - Break Even Multiplier

    Lets imagine that your BE Multiplier is 2.50 then:

    2.50 / 0.75 - 2.50 = 0.83

    I hope my answer helps.

     

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    Aleksandar Stojkovic

    I imagine that info on Targeted Net profit is in chapter 7? Do you know what section? 

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    Benjamin Norkin

    Hey John,

    Fernando is right. The issue is PROFIT vs MARKUP.

    Markup you just add 25% or whatever the desired value is. Profit you divide by .75 to get a 25% profit after you subtract the cost of services from the final sales price. More info on both of these here, scroll down to the discussion about Assignment 14: https://hyperfinearchitecture.com/pcmstudy

    I think on the ARE you won't have to blindly make that distinction...they will say something like, add a 10% markup to account for the contractor's profit. So by the book that profit might be less than 10% but the point is you're accounting for the gc to make some money.

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    Marina Curac

    John,

    I agree with answers above. I would also advise you to always check your math by going backwards.
    For instance, your breakeven is $100. If you want to charge 20% for profit, you will go:
    $100/0.8 = $125 (this is breakeven PLUS profit)
    Profit = $125 - $100
    Profit = $25
    Going backwards to check your percentage:
    ($25/$125) x 100% = 0.2 x 100% = 20%

    If we were to use the other method, this is what you would get:
    $100 x 0.2 = $20 ("profit" only)
    Total (breakeven + profit) = $100 + $20 = $120
    However, when you check this method in reverse:
    ($20/$120) x 100% = 16.7%

    Conclusion is, to calculate profit for certain percentage, you multiply the number by ((100 - profit percentage)/100)
    Hope this helps

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