Level 1: Model basics · Exercise 13 of 74

Price from a target margin

A financial modeling exercise from Modeldrill. Solve it with a live spreadsheet grid in your browser, with Fill right and Fill down, and it is checked the moment you submit.

The task

Every product must earn the gross margin in B2, measured as a share of the price. Fill the price that delivers it (column C: unit cost divided by one less the margin) and the markup on cost that this price implies (column D: price over cost, minus 1).

What this exercise teaches

Margin divides profit by price and markup divides it by cost. A 40% margin needs a 66.7% markup; adding 40% to cost only earns a 28.6% margin. Mixing the two is one of the most common pricing errors in a model.

A hint if you get stuck

Margin is profit over price, so price = cost / (1 - margin). Multiplying cost by 1 plus the margin gives a markup, which is a lower price.