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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.

Contents 1 Initial Markup 2 Determination 2.1 As a Fixed Amount 2.2 As a Percentage 3 Some Customary Markup Percentages for Retail Businesses 4 See also

[edit] Initial Markup

An initial markup is a term used in Inventory and Retail mathematics that defines a percentage known as an initial markup. It takes the cost of a good sold by a manufacturer and/or distributor to a retailer and subtracts it from the retail price given by the retailer. This is then divided into the original cost and multiplied by 100 to find the percentage initial markup. Many retailers also take into account previous sales history, present inventory and sales, markdown allowances to vendors, and other factors when deciding their initial markup on goods to be sold.

[edit] Determination

[edit] 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

[edit] 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:

<math>Original * (Markup + 1) = Total</math>

Solved for Markup:
<math>(Total / Original) - 1 = Markup</math>

Solved for Original:
<math>Total / (Markup + 1) = Original</math>

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 percentage on a price = markup / price
  • <math>.59 / 1.99 = 29%</math>

• 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

</pre>

[edit] 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%
• Cosmetics/Fragrances 75-80%
• Crystal Ware 60%
• Gifts and clocks 55%
• Food Retailers 45%

[edit] See also

• marketing
• pricing
• cost-plus pricing
• production, costs, and pricing