Comments on: How to set retail prices and markups

By: Becky McCray

Becky McCray — Mon, 08 Jan 2018 20:10:25 +0000

David Olivier sent this via the contact form:
Just a comment that to me what your site defines as a ‘gross margin’ turns commonsense on its head although I know it’s common amoing retailers to express it this way.

Mathematically, a shopkeeper’s gross margin in percent is:

100 x (retail selling price – wholesale buying price) / (buying price)

So, if he buys for 5 and sells for 10 ($ or £), his markup is

100 x (10 -5) / 5 = 100 %.

It’s not 50%.

My guess is that’s it’s been ‘sanitised’ by retailers so that their percentage gross profits sound lower to the general public.

It’s still useful though. I can’t find anything in the UK that openly discusses these margins. I’m selling some secondhand goods to a dealer so I want to know what he’s likely to be making on the deal before I negotiate.

By: Who Wants to Buy Retail? | Oil Your Way to Health

Who Wants to Buy Retail? | Oil Your Way to Health — Sun, 25 May 2014 14:35:39 +0000

[…] the same. That’s when I put the item down, left the store and did some research. Click here to learn a little bit more about how retail prices are set. Click here to learn how to determine IF […]

By: Becky McCray

Becky McCray — Wed, 21 May 2014 20:22:59 +0000

In reply to Ben. Ben, you're definitely in a market with highly variable pricing. Sounds like you're up against a competitor who uses one item as a loss leader and then make their money on the other items. What it comes down to is psychology, human behavior. The numbers can only take you so far. After that, you have to just try things and learn from your experiments.

By: Ben

Ben — Wed, 21 May 2014 13:24:02 +0000

The formularies seems to be a bit tedious as a means to an end. One of my competitors charges a roughly 40% markup on some items and triple to quadruple on others. The 40% up items have a suggested retail much higher than what they are charging. Example: widget A suggested retail is $560. I use my multiplier to find cost, which is .3848, so 560 x .3848 give me a cost of $215.49. I double that to $430.98 to keep my profit and give my clients a better than retail price. My competitor, on the other hand, sells the same item from the same manufacturer for $299. It is possible they have a better multiplier from the manufacturer as a volume discount, but their $299 works out to about 40% profit and mine is 100%. They sell MANY more than I by far and pricing may be why. Widget B they sell for a HUGE markup and they still have a much higher volume. Still trying to figure this one out.

By: Becky McCray

Becky McCray — Thu, 27 Mar 2014 01:55:03 +0000

In reply to Tom Egelhoff. Tom, that is a useful guideline. Thank you very much for sharing it.

By: Tom Egelhoff

Tom Egelhoff — Thu, 27 Mar 2014 01:37:50 +0000

Here’s one I’ve had success with.

How to Calculate Your Ad Budget

Calculating the Minimum & Maximum to Spend

This guide will help you compute the minimum and maximum you should spend on advertising based on the margin and markup of your average sale.

The Company

$1Million in Sales, Profit Margin of 48%, rent is $36,000 annually.

Where to Start
The first thing we must do is compute 10% and 12% of your projected annual, gross sales and multiply each by markup made on the average transaction. 10% of $1M in sales =$100,000; 12% of $1M in Sales = $120,000.

Convert margin to markup

Divide Total Gross Profits by Cost. $1M in sales = $480,000 (gross profits) / $520,000 (hard costs) = 92.3% Markup.

Computing the High and Low You Can Spend

92.3% times $100,000 (10% of sales) = $93,300
92.3% times $120,000 (12% of sales) = $110,760

Final Step – Subtract Your Rent

Why subtract the rent? At this point you may find you have spent your entire advertising budget on your rent. You might have a small amount left or a sizable figure left. Either way you have a much clearer picture of your advertising budget and how to allocate your funds. Plus the higher your rent the more likely you are to have high visibility. Get a bigger sign.

Using your calculations from above:

Low $93,300 minus $36,000 (yearly rent) = $56,300
High $110,760 minus $36,000 (yearly rent) = $74,760

The Low You Can Spend On Advertising is $56,300

The High You Can Spend On Advertising is $74,760

By: Becky McCray

Becky McCray — Mon, 17 Mar 2014 20:56:13 +0000

In reply to MIKE LANGFORD. Mike, the new article on pricing products you make is now up: How to price items you produce or make Thanks for asking a great question!

By: How to price items you produce or make

How to price items you produce or make — Mon, 17 Mar 2014 06:32:51 +0000

[…] Most retailers will likely take your wholesale price and double it. That’s the most common retail pricing strategy, keystone pricing. […]

By: Small Biz Survival

Small Biz Survival — Thu, 13 Mar 2014 20:47:20 +0000

In reply to MIKE LANGFORD. Mike, that's a great question. I will get to work on a new article on how to price products you are producing for both retail and wholesale sales.

By: MIKE LANGFORD

MIKE LANGFORD — Thu, 13 Mar 2014 02:02:05 +0000

How do you figure pricing if you are producing small individual items. The items I am producing cost me .07999¢ each in materials and about 2 minutes to produce. Shipping costs are determined by quanity. How much do I charge if selling them at a retail?
Thanks,
Mike Lafoote