Markup in a Channel Question

1. Markup in a Channel Question Ted Mitchell

2. Markup is often viewed as a measure of efficiency Sales Revenue in Out Flow Efficiency = Business Machine In Flow Profit Out

3. Markup is often viewed as a measure of efficiency Price per Unit In Price-Variable Cost Efficiency = Business Machine Price per Unit In Profit per Unit Out

4. Markup is often viewed as a measure of efficiency Price per Unit In P-V Efficiency = Business Machine P Profit per Unit Out

5. Markup is often viewed as a measure of efficiency Selling Price $5 $3 Efficiency = Business Machine $5 Markup = $3/$5 = 60% efficiency $3 per Unit Out

6. Markup is sometimes called the Gross Return on Each Dollar of Revenue

7. Exam Question Can You Find Markups of Various Kinds In Channels?

8. manufacturer cost = $70 • manufacturer’s markup = $30 or 30% • manufacturer’s price = $100

9. manufacturer cost = $70 • manufacturer’s markup = $30 or 30% • manufacturer’s price = $100 • wholesaler’s cost = $100 • wholesaler’s markup = $20 or 16.67% • wholesaler’s price = $120

10. A retailer buys a product to sell in his store at an invoice cost of $120 per unit. • He needs a markup of 40% to cover his costs and make a fair and normal profit. • What must price must he set on the product? • Remember the definition of Markup • Mp = (P-V)/P • 40% = (P-$120)/P • 40%P = P - $120 • P-40%P = 120 • P(1-0.40) = 120 • P = $120/(1-0.40) = $120/0.60 = $200

11. Remember: Definition of Markup on Price • Mp = (P-V)/P • Basic cost-based pricingis to set the price, P, based upon the fair and normal return • Mp(P) = P-V • P-Mp(P) = V • P(1-Mp) = V • P = V/(1-Mp)

12. manufacturer cost = $70 • manufacturer’s markup = $30 or 30% • manufacturer’s price = $100 • wholesaler’s cost = $100 • wholesaler’s markup = $20 or 16.67% • wholesaler’s price = $120 • retailer’s cost = $120 • retailer’s markup = $80 or 40% • retailer’s price = $200 (list price) • consumer’s cost = $200

13. What is The Wholesaler’s Dollar Markup?

14. manufacturer cost = $70 • manufacturer’s markup = $30 or 30% manufacturer’s price = $100 • wholesaler’s cost = $100 • wholesaler’s dollar markup = ? • wholesaler’s price = $120 • retailer’s cost = $120 • retailer’s markup = $80 or 40% • retailer’s price = $200 • consumer’s cost = $200

15. manufacturer cost = $70 • manufacturer’s markup = $30 or 30% markup on price • manufacturer’s price = ? • wholesaler’s cost = ? • wholesaler’s dollar markup = ? • wholesaler’s price = ? • retailer’s cost = ? • retailer’s markup = $80 or 40% markup on price • retailer’s price = $200 • consumer’s cost = $200

16. manufacturer cost = $70 • manufacturer’s markup = $30 or 30% on price • wholesaler’s markup = ? • retailer’s markup on cost = 66.67% • retailer’s price = $200 • consumer’s cost = $200

17. To Solve The Problem You Have To Be Able To Compute • Markup On Cost From Price • Markup From Cost

18. manufacturer cost = $70 • manufacturer’s markup = $30 or 30% • manufacturer’s price = ? • wholesaler’s cost = ? • wholesaler’s markup = ? • wholesaler’s price = ? • retailer’s cost = ? • retailer’s markup on cost = 66.67% • retailer’s price = $200 • consumer’s cost = $200 P - V = Mp(P) P - V = Mv(V)

19. Calculations to Know • Calculate Markup in Dollars or Percentages • Calculate Markup On Cost • Convert From One Form to The Other • Calculate Markups in terms of dollars and percentages through the channel

20. Any Questions?