Determining Margin Potential Finding the maximum amount of profit you can generate from one unit of a product is called Margin Potential. This is useful for a company when making a decision about whether to go into production or not. In its simplest form, you can calculate Margin Potential as: Margin Potential = Maximum Price - Minimum Unit Costs Price Use the information table below to find the maximum price that customers deem acceptable. You can find this in the Customer Buying Criteria for each segment. Minimum Material Cost Calculate the minimum Material Cost per segment using the following equation and table below: Minimum Material Cost = [(Lowest Acceptable MTBF * 0.30) / 1000] + Trailing Edge Material Cost Minimum Labor Cost Calculate the minimum Labor Cost for each segment. Assume a base labor cost of $11.20 ($11.20 is a rough estimate of labor cost used solely to illustrate the Margin Potential Concept). Minimum Labor Cost = [$11.20 - (1.12 * Automation Ratings Below)] + 1.12 Customer Segment Information Trailing Edge Material Cost Leading Edge Material Cost Lowest Acceptable MTBF Maximum Automation Level (out Price of 10) Traditional $3.80 $7.80 14,000 $30.00 8.0 Low End $1.00 $5.00 12,000 $25.00 10.0 High End $6.00 $10.00 20,000 $40.00 5.0 Performance $4.50 $8.50 22,000 $35.00 6.0 Size $4.50 $8.50 16,000 $35.00 6.0 Margin Potential Maximum Product Name Price Minimum Material Cost Minimum Labor Contribution Margin Contribution Margin Cost ($) (%) Traditional Fast Low End Feat High End Fist Performance Foam Size Fume Determining Margin Potential Finding the maximum amount of profit you can generate from one unit of a product is called Margin Potential. This is useful for a company when making a decision about whether to go into production or not. In its simplest form, you can calculate Margin Potential as: Margin Potential = Maximum Price - Minimum Unit Costs Price Use the information table below to find the maximum price that customers deem acceptable. You can find this in the Customer Buying Criteria for each segment. Minimum Material Cost Calculate the minimum Material Cost per segment using the following equation and table below: Minimum Material Cost = [(Lowest Acceptable MTBF * 0.30) / 1000] + Trailing Edge Material Cost Minimum Labor Cost Calculate the minimum Labor Cost for each segment. Assume a base labor cost of $11.20 ($11.20 is a rough estimate of labor cost used solely to illustrate the Margin Potential Concept). Minimum Labor Cost = [$11.20 - (1.12 * Automation Ratings Below)] + 1.12 Customer Segment Information Trailing Edge Material Cost Leading Edge Material Cost Lowest Acceptable MTBF Maximum Automation Level (out Price of 10) Traditional $3.80 $7.80 14,000 $30.00 8.0 Low End $1.00 $5.00 12,000 $25.00 10.0 High End $6.00 $10.00 20,000 $40.00 5.0 Performance $4.50 $8.50 22,000 $35.00 6.0 Size $4.50 $8.50 16,000 $35.00 6.0 Margin Potential Maximum Product Name Price Minimum Material Cost Minimum Labor Contribution Margin Contribution Margin Cost ($) (%) Traditional Fast Low End Feat High End Fist Performance Foam Size Fume