The markup is an additional amount added to the price to determine the final sale price of a product.
It is expressed as a percentage and is the difference between the selling price of a product and its production cost.
The markup essentially generates positive profits for the company, because the final selling price exceeds all costs, both fixed and variable, invested in producing the good or service.
Markup and pricing method
The pricing method is a process for determining the price of a product or service.
This is based on various costs that the company incurs:
- The perceived value of the product by consumers;
- The price set by competitors;
- The market trend;
- The brand positioning.
It is referred to as mark up pricing, when indicating one of the forms of pricing based on cost.
Mark up pricing is a widely used method in retail, in fact, the sale prices are determined by increasing the cost of the product by a certain percentage, also called markup.
How to calculate the mark up
The mark up, as we have already said, is expressed in percentage.
If, for example, a retailer buys a liter of wine at 1.50 euros, adding a markup of 0.50 can be expressed as a percentage of the selling price, as well as a percentage of the cost.
So, the retailer who purchased the wine for 1.50 euros adds a markup of 0.50 euros on the cost in order to sell the product at the final price of 2.00 euros.
Therefore, the percentage can be calculated on the selling price as (50/200=25%) or, on the total cost (50/1.50=33.3%).
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