Retail markup is the difference between the cost of purchasing or manufacturing a product and the sales price of the product, and is calculated as a percentage increase from the base cost to the sales price. Understanding the retail markup of your products allows you to identify the products on which you make the largest profit with a single sale. Products producing the largest profit per sale should be showcased in your store and recommended by sales staff in order to increase the overall profitability of your business. Retail markup percentages can also help identify products with limited earning potential that you may want to replace with a higher earning product.
Determine the base cost of purchasing or manufacturing the product. If you manufacture the product in your business, you can derive the base cost of the product from production reports. If you purchase your products from the manufacturer or a reseller, you can get the base cost of the product from an invoice.
Obtain the current sales price for the product.
Divide the sales price of the product by the original cost of the product. For example, if a product cost you £13, and you sell the item for £32, then divide £32 by £13 to get 2.5.
Convert the calculated value from Step 3 to the retail markup percentage by moving the decimal place two places to the right. For example, 2.5 becomes 250 per cent. The retail markup on the product is 250 per cent.
If you are not certain how to calculate retail markup, hire an accounting or finance professional to assist you with the product analysis.
Tips and warnings
- If you are not certain how to calculate retail markup, hire an accounting or finance professional to assist you with the product analysis.