Markup (or price spread) is the difference between the selling price of a good or service and its cost. It is often expressed as a percentage over the cost. A markup is added into the total cost incurred by the producer of a good or service in order to cover the costs of doing business and create a profit. The total cost reflects the total amount of both fixed and variable expenses to produce and distribute a product.[1] Markup can be expressed as the fixed amount or as a percentage of the total cost or selling price.[2] Retail markup is commonly calculated as the difference between wholesale price and retail price, as a percentage of wholesale. Other methods are also used.
Profit = Sale price − Cost[3]
700 = 2500 − 1800
Below shows markup as a percentage of the cost added to the cost to create a new total (i.e. cost plus).
or solved for Markup = (Sale price / Cost) − 1
or solved for Markup = (Sale price − Cost) / Cost
Markup = ($1.99 / 1.40) − 1 = 42%
or Markup = ($1.99 − $1.40) / $1.40 = 42%
Sale price − Cost = Sale price × Profit margin
therefore Profit Margin = (Sale price − Cost) / Sale price
Margin = 1 − (1 / (Markup + 1))
or Margin = Markup/(Markup + 1)
Margin = 1 − (1 / (1 + 0.42)) = 29.5%
or Margin = ($1.99 − $1.40) / $1.99 = 29.6%
A different method of calculating markup is based on percentage of selling price. This method eliminates the two-step process above and incorporates the ability of discount pricing.
75.00/(1 − .25) = 75.00/.75 = 100.00
Comparing the two methods for discounting:
93.75 × (1 − .25) = 93.75 × .75 = 70.31(25)
cost was 75.00 and if sold for 70.31 both the markup and the discount is 25%
100.00 × (1 − .25) = 100.00 × .75 = 75.00
cost was 75.00 and if sold for 75.00 both the profit margin and the discount is 25%
These examples show the difference between adding a percentage of a number to a number and asking of what number is this number X% of. If the markup has to include more than just profit, such as overhead, it can be included as such:
or
P = (1+μ) W. Where μ is the markup over costs. This is the pricing equation.
W = F(u,z) Pe . This is the wage setting relation. u is unemployment which negatively affects wages and z the catch all variable positively affects wages.
Sub the wage setting into the price setting to get the aggregate supply curve.
P = Pe(1+μ) F(u,z). This is the aggregate supply curve. Where the price is determined by expected price, unemployment and z the catch all variable.
To calculate official website markup Markup Calculator.net