estimating price per customer

Apr 24, 2006 4 Replies

I folks..I need some help with homework.. I'm being asked to estimate the correct price per customer, the question is: the company pays employees $100,000 per 6month period. the average cost of supplies per customer is $500. expected number of customers 500 (1st 6 months), 1,500 (2nd 6 months) the company wants to earn $200 per customer.



what would the correct price be per customer.



I think I should use the contribution margin ratio, but I don't know the exact formula. Can anyone help?



Thanks Smorin



2 methods, you choose:

A - Figure your total costs and expenses per customer and add the desired profit per customer.

B - Figure your total costs and expenses for all customers, divide by number of customers, add desired profit.

That's common sense and simple arithmetic, you don't need a formula, just think and do the math.

wrote

Here's the funny thing. Some customers will pay more for the very same thing.

You can have less customers and make more money by increasing prices, decreasing employees (and therefore wage expense).

Unless you plan to change prices in the second half of the year, you may not meet your profit goals because of increasing expenses in the later half of the year.

Are the customers buying products that can be made and stored? If so then simple straight line math works great. If it's services, you'll lose money in the first half the year with idle employees, and lose money in the second half paying overtime.

That's good to know...I'm sure I'll need to remember that soon! Thank you!

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