Use this calculator in Excel to calculate markup prices the right away.
You can change your currency in this spreadsheet by clicking on the currency symbol next to 'enter the cost price' and selecting the one you want from the drop down list.
Markups enable a business to make a profit. Make sure you recoup your business costsandmake a profit...
...andremain competitive so that customers continue to come through your doors.
Read on to learn how to calculate markup prices, what criteria to base markup calculations on, and how to convert markups into percentages.
Here is a screenshot of the calculator in the Excel file.
A markup is an amount added to the cost price of an item to get a sell price to make a profit.
Sell Price less Cost Price = Markup or
Revenue less Cost of Sale = Gross Profit
So, if you purchase a hat for a cost of $4.50 and sell it for $7.00 the difference of $2.50 is the markup or gross profit take off the expenses and you have the net profit.
Calculate Markup Percentages
If you know the cost and sell prices of an item and want to find out what the percentage of the markup is, here is the formula:-
Sell price less cost price divide by cost price
Here's an example based on the hat mentioned earlier:-
$7.00 take away $4.50 = $2.50
$2.50 divided by $4.50 = 0.55555
Move the decimal over 2 to get the percentage and round off
The markup is 55.56%
Below is an example guide of markup percentages that a business could use. You will notice the higher the value the lower the markup:-
Purchase Price Mark-Up
Under $50 - multiply by 100%
$51 - $100 - multiplyby 75%
$101 - $500 -multiply by 50%
$501 - $1,000 -multiply by 25%
above $1,000 - multiply by 15%
Some business opt to use one straight forward percentage such as 30% on everything.
Some businesses opt to go with a 100% markup, plus 10% on everything.
As long as whatever the business does the sell price is reasonable, competitive and suitable to its market, and doesn't leave the business short of money if it's too low.
If discounts are provided the markup needs to be enough to cover this discount as well as the expenses without hurting the profit. Discounts can be used for:-
- encouraging bulk buying by customers
- encouraging customers who buy on credit to pay on time or earlier than due date
A business can use a lower marked-up product to draw customers in and get them looking at other products in the catalog that have a higher markup.
Monitoring the Profit
It is essential that a business monitors the markups of their products and services to ensure the business is making enough money to cover all costs and making a profit to grow the business.
The best way to monitor if the markups are servicing the needs of the business is to calculate the gross profit margin. The gross profit margin is a percentage figure and is a quick indicator of the profit available to cover costs.
How to Set the Selling Price
How exactly does a business decide what selling price to set to an item or service?
The main motivator will be the profit:-
- How much profit does the business want to make after all expenses are paid for
- And then how much does the business need to make to cover the cost of buying or making the product and anything related to that such as freight, customs fees etc.
- The markup also needs to cover the general running costs the business has to pay such as rent, power, wages etc.
This very important decision on profit will then be influenced by:-
- How much the competition sells their products and services for
- The particular niche and geographical location that the business is in
- The size of the business bigger businesses may be able to buy larger quantities of a product thereby gaining a discount giving them the ability to undercut smaller competitors
- Manufacturers providing fixed selling prices for their products
If you offer a service there will be other considerations such as:-
- The quality of work you want to provide
- The different aspects within the service i.e. you may want to provide basic, standard or advanced options
- Your goals
- Your customer's wants
Yes, there is a lot to think about to calculate markup prices!
There are several ways to research all this:-
- Shop at your competitor's or hire their services to find out their prices
- Read up on selling prices and markups at your local library
- Ask your local business chamber, support or network group if they have any publications with tips and ideas to calculate markup prices
- Ask your friends and family what they think.
If you have any questions on how to calculate markup prices please contact me.