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Making Sense of Markups

Learn about markups, pricing products, rounding in marketing, markup calculation, profit margin, and pricing strategies. Discover how to set prices to maximize profits and understand the relationship between cost, retail price, and markup rates.

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Making Sense of Markups

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  1. Making Sense of Markups

  2. Pre – Test on Pricing

  3. Pricing Products • Does a retailer make the products it sells? • Not Usually –buy from wholesalers/producers • Does a Retailer buy a shirt for $15 and sell it to customers for $15? • Why or Why not? • If a retailer does not sell its products for more than what it cost them, what would happen?

  4. Rounding in Marketing • Round money to the nearest 100th (2 decimals) • $435.34555 • $435.35 • Round Percentages to nearest tenth (1 decimal) • 97.567% • 97.6% (lets look at #1 on your pretest)

  5. Pricing Products • To make a profit, what must a business do with the products they buy to sell? • Mark them up • As a business owner, if you set your markup rate too high, competitors will be able to undercut your prices. However, if you set markup rates too low, you will be hard pressed to make a profit.

  6. What is Mark-up • Cost: the initial price paid by retailers for the products they sell • Includes shipping costs • Markup: adding a dollar amount (markup), as a percentage or a dollar amount, to the cost of the products purchased to sell to customers • Used by retailers and wholesalers primarily • RetailPrice: The total price charged for a product sold to a customer, which includes the manufacturer's cost plus a retail markup.

  7. Convert % to a Decimal • Process: Drop the % symbol and move the decimal point 2 places to the left • Example: Convert 75% to a decimal: • Example: Convert 8.5% to decimal • Answer 8.5% = 0.085 • Example: convert 180% • Answer 180% = 1.80

  8. Review #2 - #5 on Pretest

  9. How to Markup • Most difficult thing to determine in business is how to price your product • Should every product a business sells be “marked-up” the same percentage?” • No, every item is different and is based on: • Customer Demand for a product • Price competitors are selling their products at

  10. Calculating Markup Amount • Some businesses will determine retail by marking the product up by the industry percentage. • Reminder Markup: adding a dollar amount (markup), as a percentage or a dollar amount, to the cost of the products purchased to sell to customers • Formula:Markup = Retail Price – Cost • Difference between retail price and cost • The markup may also be called the gross profit

  11. Example • Discount Electronics purchased HDTVs for $489.56 each and sells them for $899.99 • What is the markup amount on each TV? • Markup = Retail Price – Cost • Mark up = 899.99 – 489.56 = 410.43

  12. Calculate Retail Price w/Markup Rate • Determine the amount you will charge based on the percentage you want to make • Two Steps: • First calculate the markup amount • Then add the markup amount to the cost to equal your Retail Price Two Step Formula: • Markup = Cost * Markup Rate • Retail Price = Cost + Markup

  13. Example • Wholesale Jewelers, Inc. sells digital watches to jewelry stores for $18.45 each. The suggested retail price is to add a mark-up rate of 160% of cost. What is the suggested retail price? • Markup = * = • Retail Price = += 18.45 1.60 29.52 18.45 29.52 47.97 Formula: • Markup = Cost * Markup Rate • Retail Price = Cost + Markup

  14. Let’s Practice • What is 170% markup on $125 cost • Markup AMOUNT: • Retail Price: • 104% of $4329 cost is what? • Markup AMOUNT: • Retail Price:

  15. Calculate Additional Quantity You want to purchase more product than last year. Formula: • Additional Quantity = Original order * converted % • Total Order = Additional Quantity + Original order Example: • You bought 95 hats last year and want to increase your order by 50% more this year. • 95 X .50 = 47.50 • 47.50 + 95 = 142.50 round up/down • How many are you buying? • 143 items

  16. Example • If our school store purchased 144 mittens last year, and this year we would like to purchase 30% more than last year. How many mittens do we need to order this year? • 144 * .30 = 43.2 • 144 + 43 = 187 mittens

  17. Review # 6 – 8 on pretest

  18. Complete the Pricing Strategies Assignment

  19. Markup amount as a Profit Margin (Percentage) • The profit margin is the markup expressed as a percent of retail – it is the net sales less the cost of goods sold/divided by Net sales.

  20. Profit as a Percent of Retail Pricewhat % of your retail price is profit? • Businesses usually express the profit margin as a percent of the retail price (selling price) • Formula:Profit Margin = Markup / Retail Price • Example: Luggage costs $54 and the suggested retail price is $90, what is the markup rate based on retailprice? • Markup Amount = Retail Price – Cost • $90-$54 = $36 markup • Profit Margin = Markup / Retail Price • 36/90 = .40 or 40% PROFIT Margin

  21. Markup as a Percent of Retail Price • A Florist buys roses for $10.99 a dozen and sells them for $24.95 a dozen. What is the profit margin based on the retail or selling price? • Markup amount = Retail Price – Cost • Markup Amount = 24.95-10.99 = 13.96 • Profit Margin = Markup amount / Retail Price • Profit Margin = 13.96/24.95 • Profit Margin = .5596 • Profit Margin = 56%

  22. Markup as a Percent of Retail Price Our school store purchases a printed Under Armour hooded sweatshirt from Gear for Sports for $37.50. We sell the hooded sweatshirt for $60.00. What is the profit margin based on retail price? • Profit Margin = Markup / Retail Price • $60.00 – $37.50 = $22.50 markup • $22.50 / $60.00 = .375 = 37.5%

  23. Markup as a Percent of Cost • Many manufacturer’s tell you a suggested retail price. To calculate your markup rate based on the cost(what % did it get marked up) • Formula: Markup rate = Markup amount/Cost • Example: Rain suit cost $120 and it is suggested at $162. What is the markup rate based on cost? • First calculate markup: $162- $120 = 42 • Next calculate markup rate: 42/120 = 35% (convert answer to a %)

  24. Markup as a Percent of Cost • First calculate markup: $162- $120 = 42 • Next calculate markup rate: 42/120 = 35% • You have a Markup rate of 35% What is the profit margin? Profit Margin: • 160-120 = 42 • 42/162 = 25.9% • You earned a Profit Margin of 25.9% • (25.9% of your retail price is in profit).

  25. Practice • Gear for Sports sells under armour t-shirts to the school store for $13.50 each. They have a suggested retail price computed by marking up the cost by 60%. What is the suggested retail price? • Markup = Cost * Markup Rate • 13.50 * .60 = 8.10 • Selling Price = Cost + Markup • Selling Price = 13.50 + 8.10 = $21.60 • What is your Profit Margin?

  26. Post Test • Review Remainder of Pretest • Complete the Post Test

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