Margin vs Markup
Retail Markup Example
Max owns a retail store called Retailco. Retailco sells clothing as well as other items common to department stores. Max’s company has just opened their doors and is still finding a place in the market. As a result, some of the essential financial ratios have not been calculated yet. Max would like to calculate his retail markup for his various selling items so that his new business can determine the retail actual retail price of the products that they are selling. These markups will serve as benchmarks for the rest of the business team in an effort to show the company’s likelihood of success. Achieve these efforts by estimating the total amount of profits by comparing the retail price of the products with the overall spending and costs of the company.
Recently, the amount of profit made on the average pair of women’s jeans has come into question. Max, from working in the industry for years, has an intuition that he is making a profit on these products. Still, he needs to prove this to the rest of his company. Personally, he also wonders what is standard retail markup for a department store just like his.
Calculating Retail Markup
Max initially searches Yahoo for the term “retail markup calculator”. Though he does not find a function to provide his calculation, he does find a formula which will serve the purpose. Max will utilize the formula known as the retail markup formula. Because this formula takes the retail price of the cost to produce a unit of product and subtracts that price from the retail price of the product, what is left is a retail markup price.
$15 – $10 = $5
Knowing his retail markups will help him to build confidence and courage in his team. He resolves to find retail markups for all of his products. As a result, he finds that this amount is standard with industry expectations.
Additionally, the retail markup percentage is calculated by taking the retail markup and dividing the value by the unit cost of the product. The fraction that remains after the calculation is known as the retail markup percentage. To learn how to price for profit, download our Pricing for Profit Inspection Guide. Easily discover if your company has a pricing problem and fix it!
Access your Strategic Pricing Model Execution Plan in SCFO Lab. The step-by-step plan to set your prices to maximize profits.