If you know the price of a product at one place in the marketing chain, you can use some math to estimate the price of that same product at different points in the marketing chain.
For example, my local natural foods store is selling kale for $2.49. We can use a margin formula to estimate their cost for the product.
For example, my local natural foods store is selling kale for $2.49. We can use a margin formula to estimate their cost for the product.
In this case, the price the marketer is charging is $2.49, and we are estimating the margin at 42%. So:
Depending on how your brain works with math, it might make more sense to think of it this way:
As another example, let's look at how to estimate the price a wholesale distributor is selling their product for if we use a tool like a USDA price report. According to the USDA's Wholesale Market Price Reports, organic kale in the Chicago terminal market is selling for $27.00 for a 24-count case. We use a different expression of the same formula to estimate the price a wholesale distributor who buys that kale will sell it for:
In this case, the cost the marketer is paying is $27.00, and the margin they are using to determine their selling price is 23%. So:
Now, we have an estimate of the price my local retailer is paying to buy their kale from the wholesale distributor - about $35.06 a case, or $1.46 per bunch.
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