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 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 Material Cost [(Lowest Acceptable MTBF * 0.30)/ 1000] + Trailing Edge Position Cost Minimum Labor Cost [$11.20 (1.12 Automation Ratings Below)]+ 1.12 Customer Segment Information Trailing Edge Mati Cost Leading Edge Matia Lowest Acceptable Maximum Price Automation Level (out of 10) Cost MTBF Traditional Low End High End Performance Size $3.80 $1.00 $6.00 $4.50 $4.50 $7.80 $5.00 $10.00 $8.50 $8.50 14,000 12,000 20,000 22,000 16,000 $30.00 $25.00 $40.00 $35.00 $35.00 8.0 10.0 5.0 6.0 6.0 Margin Potential Maximum Price Minimum Material Cost Minimum Labor Cost Contribution Margin Contribution Margin Product Traditional Low End Name Able Acre 3.36