Margin of Profit vs. Mark up From Cost
The mystery solved!
A frequent request from our customers is for assistance with setting markups. This question usually leads to a deeper discussion about Profit Margin Pricing versus Markup from Cost. If you’ve ever found yourself asking some of these same questions, read on...
PROFIT MARGIN
If you work on a 40 percent profit margin then you would charge $16.67 for an item that you paid $10.00 for. Use the formula below to calculate your margin:
| EXAMPLE | |
| • TAKE YOUR COST (the price you paid) | 24.50 |
| • DIVIDE THAT BY THE PRICE YOU WOULD | / |
| LIKE TO CHARGE AT THIS RETAIL LEVEL | 98.00 |
| • THE RESULT IS | 0.25 |
| • DISREGARD THE DECIMAL AND | 100 |
| SUBTRACT THAT AMOUNT FROM 100 | -25 |
| 75 | |
| • TOTAL WILL BE YOUR PERCENTATION OF MARKUP FROM | 75% |
| COST WHICH SHOULD BE ENTERED IN THE APPROPRIATE | FIELD |
In this case, by entering 75% in the field, the system would calculate the retail price to a number that would be 75% profit.
MARK UP FROM COST
If you work on a mark up from cost then you would charge $15.00 from and item that you paid $10.00 for.
| EXAMPLE | |
| • TAKE THE PRICE YOU WOULD LIKE TO CHARGE | 15.00 |
| • SUBTRACT THE COST YOU PAID | -10.00 |
| • THE RESULT IS | 5.00 |
| • DIVIDE THE RESULT | 5.00 |
| • BY THE ACTUAL COST | /10.00 |
| .50 OR 50% | |
| • 100 IS THE BASE PERCENTAGE | 100% |
| • ADD THE ADDITIONAL PERCENTAGE | 50% |
| • TOTAL MARKUP FROM COST PERCENTAGE | 150% |
In this case you would enter the percentage as 150%. That means that the system will take the 100% of cost you paid and add 50% of the cost to it.
Click here to download a Profit Margin Pricing vs Markup from Cost Quick Reference Guide.