How to calculate Maximum Retail Price (MRP) including PTR/PTS of an Ayurvedic Medicine Company’s Products?

If you own an ayurvedic marketing company or ayurvedic manufacturing company then fixing or calculating maximum retail price (mrp) for your products is a crucial step. In this article, we will discuss about how to fix and calculate MRP for your products.

Definition of Maximum Retail Price (MRP):

A maximum retail price is a maximum cost that is to pay by consumer for any purchasing any product and/or service. Printing of MRP is compulsory for manufacturer to print at all products/services.

Expert’s Opinion about Maximum Retail Price:

A best Maximum Retail Price (MRP) should not be as high as it reaches out from buyer range and shouldn’t be as low as it doesn’t fulfil company’s expenses and cost as well as doesn’t categorize it as cheap/low quality product.

A MRP is highest amount paid by consumer but a retailer may choose to sell it at lesser prices than MRP. A product/service could be sold out at less than MRP but can’t be sell more than printed Maximum Retail Price.

Now come to calculating Maximum Retail Price of a Product:

Here we are taking an example of any product at which you have give CnF margin, distributor margin, and retailer’s margin. Along with margins, you have to get sales team expenses, office expenses, salary of workers and staff, factory expenses etc from that product. We can’t add whole cost in single piece or product but expenses, salary etc is divided according to monthly production capacity and sale of organisation. These are basically compensated in profit margin of that product and don’t directly added into product’s MRP. But distribution channel margin will be included in every single piece of product.

Suppose actual manufacturing cost for a product (including tax, transportation, packaging etc.) is 10/-. Now calculate cost you have bear for providing margins and expenses for that product.

Your maximum retail price calculating formula will be like:

Maximum Retail Price = Product’s actual Cost + Profit Margin + CnF margin + Distributor Margin + Retailer Margin + GST + Transportation + other expenses etc.

Profit margin in product included expenses, rent, salary, daily running cost of unit etc. Suppose you have manufactured 1000 pc of 10 products that cost you at the rate of 8, 10, 15, 18, and 20 like that. Total investment in this product is approximate 250000/-. Now you have planned your marketed strategy and you need 50000/- per month to pay bill, expenses and salary at initial level. You need 25000/- as your salary to pay household bills. You can sell that stock in four months at initial level. You need to add four month expenses in it i.e. 50000*4 plus 25000*4.

Suppose Promotion and advertisement charges cost you at 100000/-. Now total cost of that product will be 250000 + 200000 + 100000 + 100000 = 600000. Now calculate per piece cost to you will have to add per product to run your organisation effectively and that is 60/-per pc. You can add more or less margin in a particular product depend at competitor’s price and cost of product.

Above calculation could be done according to your actual value. You can add or subtract any expense and costing factors.

Now come to profit margin you will provide to Cnf, distributor and retailers. Total margin is 20+10+5 i.e. approximate 35% theoretically. Practically retailer's 20% margin will be calculated at distributor's rate. Distributor's 10 percent margin will be calculated at CnF's rate. CnF margin we are not including in this calculation because small and macro sized companies generally don't appoint CnF and provide material to distributors directly. You can also add CnF margin to calculate MRP.

Suppose MRP is X.

GST: 12%

MRP without GST is X/1.12

Retailer Margin is 20%

Price to Retailer is (X/1.12)/1.2=X/1.344

Distributor Margin is 10%

Price to Distributor (Stockist) is (X/1.344)/1.1 = X/1.478

Profit Margin: 60/- per pc

Product’s actual cost is 15/-

You calculate MRP:

MRP (X) = MRP without GST x 12 %

MRP without GST = Retailer Margin + Distributor Margin + Profit Margin + Product’s actual cost

X/1.12 = (X/1.12 - X/1.344) + (X/1.344 - X/1.478) + 60 + 15

X/1.12 = 0.22X/1.50 + 0.13X/1.99 + 60 +15

X/1.12 = (0.44X + .20X)/2.99 + 60 + 15

X/1.12 = (0.64X)/2.99 + 60 + 15

X/1.12 = (0.64X + 179.4 + 44.85)/2.99

2.99X = 0.72X + 200.92 + 50.23

2.99X – 0.72X = 200.92 + 50.23

2.27X = 251.15

X = 251.15/2.27 = 110.64 i.e. 110/-

MRP of the product will be 110/-

MRP without GST will be 110/1.12 = 98.21/-

Price to Retailer will be 98.21/1.2 = 81.84/-

Price to Stockist/Distributor will be 84.84 /1.1 = 74.4/-

Profit Margin is 60/- i.e. Cost 74.44-60 i.e. 14.40/- . Actual Cost is 15/-

Difference occurring of 0.60/- is due to minor changes of GST paid during distribution channel. We have deducted GST in MRP directly but GST will be included in every invoice during company to Cnf, CnF to distributor, distributor to retailer and will cause slight difference in calculation.

If we will calculate based upon every invoice tax difference then calculation will be lengthy and time consuming. So, You can ignore it or add into profit margin to compensate calculation difference. 

Read Related: 
How to take franchise of an Ayurvedic Medicine Company?
How to Open Ayurvedic Medicine Store?
How to Start Ayurvedic Wholesale and Distribution Business?

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