What is Maximum Retail Price (MRP)?
Maximum Retail Price (MRP) is the maximum price of any product at which a product/service can be sold out to consumer. It is final maximum cost that a consumer has to pay to purchase any product/service. It is inclusive or all taxes.
Some persons ask about how to calculate GST at MRP? Maximum retail price is inclusive of all taxes. It is the final/maximum price that could be paid by customer. No one can increase MRP or sell products at higher rates than its MRP. Companies fixed maximum retail price so that they can compete in market as well as earn enough profit to run their organization smoothly.
How to Calculate Maximum Retail Price (MRP)?
Different companies have different formula for calculating maximum retail price. Mostly MRP is fixed according to market trend but following formula can be used to calculate maximum retail price (MRP). This MRP calculation is considering as per Vat/Tax only. In case of cst and excise duty, there may be change in MRP. We are considering manufacturing cost inclusive of excise duty and cst if any.
Maximum Retail Price= Manufacturing Cost + Packing Cost + Margin + CnF margin + Stockist Margin + Retailer Margin + GST + whole Transportation + Marketing/advertisement expenses + other expenses
Suppose if any company is manufacturing a product at rate of 25/- per pc. Then MRP can be fixed according to above formula.
Manufacturing cost=25/- Packing Material= 2/- Margin 25%= 25*25/100=6.25/- Total Cost=25+2+6.25=33.25/- in round figure we take it 34/- CnF margin 6%=34*6/100=2.04/- now amount is 34+2.04=36.04/- Stockiest margin 10%=36.04*10/100=3.60 i.e. 36.04+3.60=39.64/- Retailer Margin 20%= 39.64*20/100=7.93 i.e. 39.64+7.93=47.57/- This is not PTR or PTS.
This is general calculation for MRP. Tax and transportation will cost at every step e.g. when supply from manufacturer to CnF, CnF to stockiest, stockiest to retailer. PTR and PTS have different procedure of calculation. Tax is ultimately paid by last consumer. Minor difference in tax is occurred during every transaction but we can leave these differences because these are negligible.
Suppose GST is 5.25%. GST 5.25%= 47.57*5.25%=2.50 i.e. 47.57+2.50=50.07/- Transportation from manufacturer to CnF is 50 paisa per pc Transportation from CnF to stockiest= 50 paisa per pc Transportation from stockiest to retailer= 30 paisa per pc Whole transportation= 1.30/- per pc Cost= 50.07+1.30=50.37/- Marketing/Advertisement expenses= 10/- per pc Other expenses= 3/- per pc Total expenses= 13/- per pc Grand total cost= 50.37+13=63.37/- in round figure is 64/- Maximum retail price = 25 (MC) + 2 (PC) + 6.25 (M) + 2.04 (CFM) + 3.60 (SM) + 7.93 (RM) + 2.50 (GST) + 1.30 (T) + 13 (E) = 63.62 in round figure is 64/-.
MRP could be less or more depend upon change in cost, margin, transportation, tax etc. One should be careful while fixing MRP for any product. It can make difference in your market presence. MRP should neither be as low as one couldn’t get enough profit to run company nor as high as one couldn’t compete with competitors.
Above calculation is for example purpose only, one can use his own method to calculate MRP. If you want to know how to calculate Price to retailer (PTR) and Price to Stockiest (PTS), read following article: How to calculate PTR and PTS?
This is reason why does consumer get 3 times costly product than its manufacturing cost on average.
Below calculation is for example purpose only. Change value of yellow color portion as per your need. Change value and wait for seconds to get your mrp online. Remove what is not applicable.
For Example if I purchased pen in banglore @ Rs/- 20.per pc than my friend also purchase that pen @ same price in mumbai. It is MRP rate. you have 10 middlemans. 30% raw material , 8% tax , than 20% profit of retailar. How you distribute this price for each process.
As per your comment
30% raw material cost (we are considering it at total manufacturing cost) = 6/- as per MRP
8% Tax i.e. 1.48/-
Now MRP without Tax is 18.52/-
20% retailer Margin i.e 3.09/-
Amount left after retailer margin is 15.43/-
Now we have 15.43-6 = 9.43/-
From this 9.43/-, we will take profit for us and distribute to 10 middlemen depend at important of middleman like stockist 8-10%, CNF 5-6% etc
As per your comment
30% raw material cost (we are considering it at total manufacturing cost) = 6/- as per MRP
8% Tax i.e. 1.48/-
Now MRP without Tax is 18.52/-
20% retailer Margin i.e 3.09/-
Amount left after retailer margin is 15.43/-
Now we have 15.43-6 = 9.43/-
From this 9.43/-, we will take profit for us and distribute to 10 middlemen depend at important of middleman like stockist 8-10%, CNF 5-6% etc
Sir i am herbal medicine manufacturer having all proprietary medicines . Now i am looking to start selling my products how much margin will be appropriate to Distributor, Stockist, Retailer . As we are a new company distributors are demanding around 50 to 70 %. What is the actual thing. Please guide me.
percent margin depend at marketing type you prefer to go. If you have own MR then margin will be just like 10% or 15% but if you just want to supply goods to distributors and remaining work at distributors to supply, market and collection of payment then margin is more. Distributor will demand any amount of percent, it’s up to you to decide at which margin you will supply to them. Fix margin as per your costing and supply…