Inverse of Profit

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    Matthew Bowers

    To calculate profit, you must divide by the inverse target profit percentage. In this case, the inverse target profit percentage is. . . (1.0 - 0.2) x 100% = 80%

    In comparison, a mark-up of 20% would be achieved by multiplying the base price (break-even rate in this case) by 1.2.

    A mark-up is exactly as the name implies - an increase on the base price of some percentage to arrive at the selling price. In other words, it is a premium tagged on to a base price. In the world of construction, mark-ups may be applied to products and materials sold by distributors. This differs from profit margin in that the profit percentage is equal to the billed amount minus the break-even rate.

    For a more in-depth explanation of the difference between profit margin and mark-up, refer here or search "margin vs markup" on the web.

    It's unclear whether NCARB understands this difference. The ARE Handbook has at least one example question that is calculated incorrectly, which is well documented here. However, it seems they are at least aware of the confusion, because current versions of the ARE appear to avoid similar questions.

    Hope this helps.

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    Matthew Bowers

    In addition to my previous response (which is/was pending approval), below is a formula that you should know heading into PcM+PjM. Beyond basic memorization, it's important that you understand the relationships between the individual components.

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    Aniket Nagdive

    Matthew : Thanks a lot. This is really helpful 

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