How Changes in Purchase Prices Affect Profit Margins and Pricing

New purchase prices affect profit margins when they change the cost of goods sold. If costs rise while selling prices remain unchanged, gross margins decline. Calculate gross margin as (Selling Price − Cost of Goods Sold) ÷ Selling Price × 100.

For example, an item selling for 100 with a cost of 70 has a 30% margin. If its cost increases to 80, the margin falls to 20% for units sold at that cost. Maintaining a 30% margin requires a selling price of approximately 114.29. Consider your inventory valuation method before repricing. Try Cash Cloud for free to explore purchasing, inventory, and profitability tools.