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Another pricing question for you all
It was only recently that i found out the difference between, a mark up on goods and a profit margin on goods – maths not being a strong point for me i thought these were one in the same thing.
So i was wondering how you guys work out your prices. If you mark up on goods by 40% (for example) or you look to get a 40% profit margin.
As these selling prices are different. for example a 15ft x 4ft premier banner from banner box costs £36.04
With a 40% mark up the selling price would be £50.46
With a 40% profit margin the selling price would be £60.07
(Assuming your just selling the blank banner on – no vinyls included)P.S don’t ask me to explain the difference between the two or why, all i know is i was told marking something up by 40% does not give you a 40% profit!!! 🙄
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3 Replies
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Lorraine,
Not sure about that ????
If you mark something up by 40% then it does give you a GROSS proifit of just under 30% (of the retail price). But we can’t live off GP can we !! I would guess our Nett profit is maybe half of GP (heat, light diesel, ads, etc etc.)
For example …
Buy it for £100 & mark up 40% = £140 retail. This means that your gross profit in that item is actually £40 which is 28.6% of the selling price 😀 Maybe this is what they were trying to say ???
Who am I to talk …….. I’m certainly not the wealthiest member here 🙄 🙄
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well sparky i would say you got it perfectly.
I mark things up and look at the figure, allow for all overheads and time, materials etc. If i feel that i am not making enough on the job well I charge what i think i should be getting for it.
This means I sometimes dont get jobs but at times jobs are better left alone, you are only turning over work and if you are not getting profit you are only being a bank for clients? -
Hi Lorraine hope this helps or am I too confusing.
“So often in the process of buying and selling a business, either the buyer or the seller gets confused with the aspects of mark-up and gross profit, sometimes with disastrous effects. The importance of understanding the difference can be seen in this simple example:
After buying a stock item for £100 a shopkeeper adds £15 to the sale price to cover his expenses and a further £15 mark up to provide the necessary profit. A cash buyer is then offered a 20% discount which reduces the price of £130 to £104. This leaves the shopkeeper with a £4 gross profit from which he still has to deduct his expenses of £15. The end result is a loss of £11 on the sale.
The problem arose because he mistakenly thought that as he had added 30% onto the cost of the product, he would still make 10% if he gave away 20%. He didn’t understand mark-up and gross profit.
Mark up is what is added to the cost price of the item to cover expenses and provide a gross profit. Gross profit is what is left after deducting the costs of the item from the selling price. Running expenses need to be deducted to reach the net profit.
This is a very common mistake and will lead the business to financial ruin if giving discounts. Obviously the seller will sell more than one item to contribute to covering the expenses, but the point is to be careful. In your investigations you will also want a breakdown of the gross profit percentage for each item. This will help to determine which items are contributing the most to the gross profit.”
Andy
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