Information about Markup (business)
Markup is a term used in marketing to indicate how much the price of a product is above the cost of producing and distributing the product. It can be expressed as a fixed amount or as a percentage. There are numerous variations of each.
Let's look at an example:
Initial Retail is $1.99
Cost is $1.40
Difference = $0.59
Thus the Initial Markup is ($0.59/$1.99) x 100% = 29.65%
Assuming no selling price increases, then 29.65% is the maximum margin (or gross profit%)that can be attained in selling this item. Markdowns, defined as reductions in the retail selling price when the item cannot be sold at its intended price, would further erode that gross profit %.
This number has great importance in that it should be compared to Operating Expenses (OE) expressed as a percentage of sales (income), taken from a Profit and Loss Statement. In reviewing OE%, it is important to look at an annual figure since any individual month may not properly reflect the full year. If OE% is 42.0%, then this item cannot be sold profitably. For this example, that product loses $0.124 every time it is sold (after deducting its share of operating expenses).
The more times this item is sold, then there is a cumulative effect of growing profit dollars and growing sales. Eventually, if enough are sold, then the OEs are divided by a larger sales number, which will decrease the OE%.
The lesson here is that initial pricing is an extremely important step in merchandising. For retailers that use a traditional calculation, such as Keystoning which is doubling cost to arrive at selling price (50% IMU), this may or may not be adequate to be profitable, particularly after markdowns are taken. In reality, there are numerous examples of products that cannot be sold profitably, but need to be in the store to satisfy customer needs. Therefore, other products need to be sold at higher MU%'s to cover the net losses of these products that lose money.
One good source for this information is "A Basic Management Accounting Manual for the Menswear Specialty Store", published by the Financial and Operations Group of the Menswear Retailers of America. However, the MRA merged with another organization that represented Womens Apparel and the book is out of print.
Solved for Markup:
Solved for Markup:
As total = $1.99
Original = $1.40
Combining the above
Initial Markup
The initial markup is the difference between the initial retail selling price (at the time of receipt of the merchandise) and the cost. Then the percentage is calculated as that difference divided by the initial retail selling price. ((Initial Retail - Cost)/Initial Retail) * 100%.Let's look at an example:
Initial Retail is $1.99
Cost is $1.40
Difference = $0.59
Thus the Initial Markup is ($0.59/$1.99) x 100% = 29.65%
Assuming no selling price increases, then 29.65% is the maximum margin (or gross profit%)that can be attained in selling this item. Markdowns, defined as reductions in the retail selling price when the item cannot be sold at its intended price, would further erode that gross profit %.
This number has great importance in that it should be compared to Operating Expenses (OE) expressed as a percentage of sales (income), taken from a Profit and Loss Statement. In reviewing OE%, it is important to look at an annual figure since any individual month may not properly reflect the full year. If OE% is 42.0%, then this item cannot be sold profitably. For this example, that product loses $0.124 every time it is sold (after deducting its share of operating expenses).
The more times this item is sold, then there is a cumulative effect of growing profit dollars and growing sales. Eventually, if enough are sold, then the OEs are divided by a larger sales number, which will decrease the OE%.
The lesson here is that initial pricing is an extremely important step in merchandising. For retailers that use a traditional calculation, such as Keystoning which is doubling cost to arrive at selling price (50% IMU), this may or may not be adequate to be profitable, particularly after markdowns are taken. In reality, there are numerous examples of products that cannot be sold profitably, but need to be in the store to satisfy customer needs. Therefore, other products need to be sold at higher MU%'s to cover the net losses of these products that lose money.
One good source for this information is "A Basic Management Accounting Manual for the Menswear Specialty Store", published by the Financial and Operations Group of the Menswear Retailers of America. However, the MRA merged with another organization that represented Womens Apparel and the book is out of print.
Determination
As a Fixed Amount
- Assume:
- Retail list price = $1.99
- Product cost is $1.40
- MARKUP = price - cost
- 1.99 - 1.40 = .59
- Assume the actual selling price was $1.60
- MARKDOWN = List price - selling price
- 1.99 - 1.60 = .39
- INITIAL MARKUP = list price - cost
- 1.99 - 1.40 = .59
- MAINTAINED MARKUP = sale price - cost
- 1.60 -1.40 = .20
As a Percentage
Algebra:- (Original * Markup) + Original = Total
Solved for Markup:
Solved for Markup:
As total = $1.99
Original = $1.40
- MARKUP % = $1.99 / 1.40 - 1 = 42%
- To convert from markup to margin or profit margin:
Combining the above
- Margin = 1- 1/(1.42)= 29.5%
See also
Marketing is a social process which satisfies consumers' wants. The term includes advertising, distribution and selling of a product or service. It is also concerned with anticipating the customers' future needs and wants, often through market research.
..... Click the link for more information.
..... Click the link for more information.
Aspinwall Classification System (Leo Aspinwall, 1958) classifies and rates products based on five variables:
..... Click the link for more information.
- Replacement rate (How frequently is the product repurchased?)
- Gross margin (How much profit is obtained from each product?)
..... Click the link for more information.
Margin may refer to:
..... Click the link for more information.
- Margin (economics)
- Margin (finance), a type of financial collateral used to cover credit risk
- Margin (typography), the white space that surrounds the content of a page
See also
- Gross margin
- Profit margin
..... Click the link for more information.
Profit margin, Net Margin or Net Profit Ratio all refer to a measure of profitability. It is calculated using a formula and written as a percentage or a number.
Margin is mostly used for internal comparison.
..... Click the link for more information.
Margin is mostly used for internal comparison.
..... Click the link for more information.
Marketing is a social process which satisfies consumers' wants. The term includes advertising, distribution and selling of a product or service. It is also concerned with anticipating the customers' future needs and wants, often through market research.
..... Click the link for more information.
..... Click the link for more information.
Pricing is one of the four p's of the marketing mix. The other three aspects are product management, promotion, and place. It is also a key variable in microeconomic price allocation theory.
..... Click the link for more information.
..... Click the link for more information.
Cost-plus pricing is a pricing method commonly used by firms. It is used primarily because it is easy to calculate and requires little information. There are several varieties, but the common thread in all of them is that you first calculate the cost of the product, then include an
..... Click the link for more information.
..... Click the link for more information.
In microeconomics, production is the act of making things, in particular the act of making products that will be traded or sold commercially. Production decisions concentrate on what goods to produce, how to produce them, the costs
..... Click the link for more information.
..... Click the link for more information.
This article is copied from an article on Wikipedia.org - the free encyclopedia created and edited by online user community. The text was not checked or edited by anyone on our staff. Although the vast majority of the wikipedia encyclopedia articles provide accurate and timely information please do not assume the accuracy of any particular article. This article is distributed under the terms of GNU Free Documentation License.
Herod_Archelaus
