Module 6 • The marketing plan
Activity 4 Refer back to Simon’s vending machine business.
Simon determined the size of his market. He did a sales forecast and considered a number of pricing factors. However, he did not do a proper costing and did not calculate a break-even point.
1. Make a number of assumptions, which you must be able to explain, and calculate the following: • Variable costs • Fixed costs • Total costs (keep Simon’s sales forecast in mind) • Break-even point.
2. Do you think that Simon’s price of R8 per tin is reasonable given all your calculations? If not how much should he charge per tin? Give reasons for your answer.
2.4 Mark-up percentage Example:
Consider this example: a shop owner buys a loaf of bread from the bakery for R6. He will sell that loaf to you, the customer, for R7.80. In doing this we can say that the owner marked up the bread by R1.80.
To calculate this mark-up as a percentage use the following formula:
Mark–up % = Gross Profit × 100 Cost of Sales
1
In the example of the loaf of bread the mark-up will be: Mark-up%
= R1.80 R6.00 30%
=
If your average mark-up% is 30%, it implies that when you receive new stock or calculate the costs of your manufactured goods you increase the amount by 30% to arrive at your selling price. Retail businesses have a mark-up policy which they communicate to the person who puts the prices on the stock. When you calculate your own product’s mark-up percentage first time around, you need to have decided what your Selling Price of your products are.
Activity 5 1. Trading concern
An entrepreneur buys and sells chairs. The rent is R3 000 a month and wages R3 500 a month. On average 50 chairs are sold every month. A chair is purchased for R200. The entrepreneur would like to have a mark-up of 20% on cost price. •
• What would the ideal selling price be? 109
× 100 1
IMPORTANT
Remember that your mark-up must always be enough to cover your fixed costs!
Name the three different factors that must be kept in mind when deciding on a selling price?
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