Markup is said to be the selling price of a product or the service. In other words, it is the cost on which the product is manufactured. For a business owner, it is important to know that markup is different from business terms such profit and margin. Pricing is the most important factor for any business and it makes an indication about the business profit and loss.
Most of the things depend on the cost from manufacturing material, labour cost, to the office rent and bills. Your business won’t be able to grow without profit. So, markup and profit margins come into the picture. Do you know how to calculate markup for your business? Read on to know more:
What is markup?
Markup is the amount of money that you charge for a product or service and it is often expressed as the percentage. The markup price of a product or service is expressed as the percentage. You can simply give an account to the online markup calculator that allows you to calculate the markup and revenue on the basis of cost and profit of the product.
An example of markup
Let’s suppose fertilizer’s for a lawn service business as an example for markup: A person purchases the fertilizer from a wholesale supplier and the cost per bag is $10 and you charge $25 for the fertilizer to your client.
So, here the markup is the difference between cost of material and the amount that you charge to your consumer “$25”. In this example, the markup would be $15 or 150 percent.
Find the markup for a product
The amount of markup that you’re going to charge for a product or service is dependent on some facts. The factors include business type, market, and the profit margin goals. The profit margins and markup price of a product or service is correlated. For example: If you want to get a profit margin with the percentage of 40, then you need to charge about 70 percent markup on your service.
When it comes to finding the markup for the product, it is a daunting task to calculate the markup for many items together. So, simply try an online markup percentage calculator that determines the cost, margin, revenue, markup, and profit of the product.
Steps to Calculate Markup?
- To calculate the markup manually, you need to know all the expenses such as revenue, cost of goods sold and gross profit.
- First off all subtract the revenue from the COGS (cost of goods sold) to determine the gross profit.
Gross Profit = Revenue – COGS
- To figure out markup, divide the gross profit by the total cost of the products to get the dollar amount.
- Multiply the dollar amount to get the markup percentage.
The markup formula looks like this:
Markup = gross product / cost of products X 100.
Instead of doing the manual calculations with the standard formula for markup you can use the online markup calculator that allows you to calculate the cost and markup that depends on the revenue and profit.
Importance of Markup
Markup is important, as it helps to ensure that you’re earning enough money to cover the cost of manufacturing expenses, so you can invest this money to grow and expand your business. You can invest the money that you made in different ways such as sourcing better talent, training the employees, afford better materials for manufacturing, etc.
It can be through different things and this is the factor that decides whether to make a profit or not. Sometimes calculations about profit and loss become a critical and daunting task. So, simply try the online percent markup calculator that helps to calculate the ideal markup price.
Thankfully, you came to know how to calculate markup by reading this article. When a retailer sells any product to make profit from the original cost of the goods, at this point markup is added. So, we can assume how much markup is important for any business.
Salman Zafar is an acclaimed blogger, editor, publisher and digital marketer. He is the founder of Blogging Hub, a digital publishing portal with wide following across the world.