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

• 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.

• 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