Reverse Gross Margin

[nightster]

Hello,

I would LOVE some help with this one if anyone can please...I would be most grateful!

So...

I have a product and it has two costs: the cost of the physical goods themselves and then the cost of advertising, which is a cost-per-acquisition, or CPA.

I also know that I want to make a 25% Gross Margin.

So, how can I work out what the maximum CPA is in order to get the 25% GM?

As an example...

I have a widget which costs me £10 to buy
I then need to advertise that widget to sell it, which is the cost-per-acquisition. < this is the unknown value
I want to make a 25% Gross Margin on this sale.

How would I would out what the maximum CPA needs to be in order to get a gross margin of 25%?

THANK YOU in advance!

 

[offthelip]

You haven't supplied enough information to solve the probelm. I believe that Gross margin = (Revenue -Costs)/Revenue
You haven't told us what price you are selling your widgets for or what percentage markup on the physical cost you are using.

 

[nightster]

You haven't supplied enough information to solve the probelm. I believe that Gross margin = (Revenue -Costs)/Revenue
You haven't told us what price you are selling your widgets for or what percentage markup on the physical cost you are using.

Apologies!

In this example, let's say I am selling the widget for £100.

The percentage markup isn't required I don't think?

So....

Cost of goods = £10
Selling price = £100
Gross margin required is 25%

How do I work out how much I have available for advertising/acquiring the sale?

THANKS!

 

[offthelip]

Starting from:Gross margin = (Revenue -Costs)/Revenue
Gross Margin= (Price - (Cost+CPA))/Price
Gross Margin * Price= Price - (Cost + CPA)
(Gross Margin * Price)- Price= - (Cost + CPa)
Price - (Gross Margin*Price =Cost + CpA
( 1 - Gross Margin ) * Price= Cost + CPa
((1 - Gross Margin)* Price)-Cost=CPA
So using this formula with the number you have given
((1 - 0.25)*100 - 10 = CPA =65

 

[nightster]

Great! That works a treat - thanks so much!