THE NEW YORK JOURNAL OF PHARMACY 



9 



of the national magazines requesting an- 

 swers to the following question : "A 

 certain article costs $i wholesale. What 

 will it have to be sold for to allow a 

 net profit of lo per cent., after allow- 

 ing 22 per cent, for the cost of doing 

 business?" Something like i,ooo re- 

 plies were received, of which 750 were 

 wrong. The answers ranged all the 

 way from $1.10 to $1.60. The majority 

 gave the selling price as $1.32, notwith- 

 standing the fact that an explanation 

 was printed at the bottom of the adver- 

 tisement declaring this answer to be in- 

 correct. The very common mistake was 

 made by these men of basing their per- 

 centage expense upon the selling price, 

 their percentage of profit on the cost 

 price, and expecting they would get ac- 

 curate results. This was the whole 

 source of the trouble. 



Here is the proper way to tackle a 

 problem of this character : The article 

 costs $1. Your cost of doing business 

 is 22 per cent., and you want to make 

 a net profit beyond that of 10 per cent. 

 — a total of 32 per cent. The cost of 

 $1, therefore, represents 68 per cent, of 

 the final selling price. Is this perfectly 

 clear? Suppose, again, your expense is 

 40 per cent., and you want to make a 

 net profit of 10 per cent. You would 

 then have to realize a total profit on the 

 selling price of 50 per cent. Now, con- 

 sidering 100 per cent, as the final price 

 you get. and subtracting 50 per cent, 

 of this for profit, you have left a resid- 

 uum of 50 per cent, for cost, and the 

 $1 which you pay for the article, there- 

 fore, represents 50 per cent, of your 

 selling price. You must consequently 

 double the cost and sell the article for 

 $2 if you want to realize your 40 per 



cent, of expense and your 10 per cent, of 

 net profit. 



Cost vs. Selling Price. 



It is because of this confusion that 

 I have recently advocated the basing of 

 all percentages on the cost instead of 

 the selling price. The cost method is 

 the one invariably given in all of the 

 arithmetics, the one taught in all the 

 schools, and the one followed by all the 

 manufacturers in every line of trade. 

 Most retail merchants, however, use the 

 selling method. It really doesn't make 

 very much diflference which method is 

 employed so long as it is employed in- 

 telligently. But I want to emphasize 

 the principle that both the percentage of 

 expense and the percentage of profit be 

 calculated from the same base. If you 

 figure everything in the selling price, 

 then see to it that you consider nothing 

 else but selling: Hgures. Never do any 

 calculating at all from the cost prices. 

 Ignore costs entirely as a settled policy. 



In putting a price on a new article do 

 not figure your profit from the cost, but 

 figure it exclusively from the selling 

 price. It is just because it is rather 

 difficult to figure from the unknown sell- 

 ing price, and because it is much easier 

 to calculate from the known cost price, 

 that in the recent address to which I 

 have referred I recommended using the 

 cost method. Nevertheless, however, in 

 this address to-night I have used sell- 

 ing figures entirely, because it is the 

 general practice of druggists to employ 

 them, and I want to make it clear that 

 all the percentages I have given have 

 been based upon sales and not upon 

 costs. Please do me the kindness to 

 keep this fact constantly in mind. 



