How to calculate retail margins

Written by summer banks | 13/05/2017

In order for a company to stay in business it must make money. In order for a company to thrive it must operate wisely and make lots of money. Without maintaining a smart inventory and pricing things accordingly, it may be possible to keep the doors open but it will not thrive until close attention is paid to money going out and money coming in. In order to calculate retail margins it is necessary to be armed with a formula and a basic grasp of applying math concepts. The formula is as follows.

Know the formula: Retail cost minus wholesale cost, divided by retail cost.

See the formula in action. Applying the formula can be demonstrated using a simple example.

Figure the retail margin. Here's an example: You paid two dollars wholesale for your product. You sold it for three dollars. You made a dollar. Great! But in order to analyse your profits and that of your competitors to ensure that you are in line for continued success, you should take it farther by determining your profit margin and whether or not it is appropriate to cover the whole business, not just that one three dollar product.

See the margin. The application of your sale numbers would fit the formula like this: 3.00 – 2.00 = 1.00 ÷ 3.00 = .33333

Convert to a percentage. To turn that into a percentage you multiply the result by 100 for a retail margin of 33.3%.

Things you need

  • Calculator
  • Retail Cost
  • Wholesale Cost

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