Markup (business)

Encyclopedia : M : MA : MAR : Markup (business)

Please [Glossary#Wwikify] (format) this article or section as suggested in the [Guide to layoutGuide to layout] and the [Manual of StyleManual of Style].
Remove this template after wikifying. This article has been tagged since April 2006.

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.

As a Fixed Amount

assume:
retail list price = $1.99 and the 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:
Markup [= x\% = (x / 100) = .x]
example: [15\% = (15 / 100) = .15]
[(Original * Markup) + Original = Total]

Using the distributive property of elementary algebra:
[Original * (Markup + 1) = Total]

Solved for Markup:
[(Total / Original) - 1 = Markup]

Solved for Original:
[Total / (Markup + 1) = Original]

Markup is the decimal representation of the markup percentage.
Original is the original amount/price.
Total is the marked up amount/price.

Specific:
INITIAL MARKUP % = initial markup / sale price
.59 / 1.99 = 29%

MAINTAINED MARKUP % = maintained markup / sale price
.20 / 1.60 = 13%

MARKUP % ON COST = markup / cost
.59 / 1.40 = 42%

MARKUP % ON PRICE = markup / price
.59 / 1.99 = 29%

To convert from markup on price to markup on cost:
MARKUP ON COST = markup % on price / 1 - markup % on price
.29 / (1 - .29) = 42%

To convert from markup on cost to markup on price:
MARKUP ON PRICE = markup % on cost / 1 + markup % on cost
.42 / (1 + .42 ) = .29

PRICE = cost / 1 - markup % on price
1.40 / (1 - .29) = 1.99

COST = price / 1 + markup % on cost
1.99 / (1 + .42) = 1.40

PRICE = markup / markup % on price
.59 / .29 = 1.99

Some Customary Markup Percentages for Retail Businesses

Using the formula (price - cost) / price

New cars 15%
Used cars 75%
Electrical Appliances 30%
Clothing 50%
Trend Clothing 59%
Crystal Ware 60%
Gifts and clocks 55%
Food Retailers 45%

See also : marketing, pricing, cost-plus pricing, production, costs, and pricing

From Wikipedia, the Free Encyclopedia. Original article here. Support Wikipedia by contributing or donating.
All text is available under the terms of the GNU Free Documentation License See Wikipedia Copyrights for details.