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Mark Up Vs Margin… are you short changing yourself?
The Mrs went on a course from her work yesterday, when asking how it went, she began to explain margin & mark up, amongst other things.
I did a little reading as I have heard these two terms, but what is the difference?
If you have been doing what many people do, myself included do, you might be surprised to learn your possibly short changing yourself.
Marking up a cost price 50%, 100%, or 600% doesn’t mean your generating that in profit.
Mark up is relative to your cost price. Suppose your buying a board in, it costs £50.00, you decide to mark it up 50%, so are selling it to the customer for £75. Many people would think great 50% profit.
50% markup is: (£75-£50=£25 then £25/£50 =0.5(50%))
Your profit margin is relative to your sale price, so your profit is really only 33% (£75-£50=£25 then £25/£75 =0.33.(33%)) with a markup of 50%
Once you have decided what margin you want to make on any given item, be it vinyl, board, paper, even labour, you then know what its respective markup % should be.
I hope that makes a little sense, and if it helps one person, make that little more money great.
Here’s some helpful resources I’ve found a long the way.
http://www.youtube.com/watch?v=BCo5i1mMO3E
http://www.theonlinebookkeeper.com/blog … -v-margin/
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2 Replies
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very important lesson this, I learned it a good few years ago so knew the difference. The thing is it still doesn’t help very much because who actually knows how much margin you need to make? In fact I asked a question about this maybe 5 or 6 years back and didn’t get one reply (if I remember correctly 😳 )
What normally happens is you start charging what you think is tight and over time you learn how far you can push your prices and even when to pull them back, if you not making enough to live then you doing something wrong and maybe need an employer 😉 :lol1:
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I suppose margins will vary business to business, depending on their overheads.
I’m going to work on a sliding scale of margins. Have the optimum margin for certain items, the middle margin, for larger quantities, if the customer complains, and a rock bottom margin, for if I am quiet, or if I am competing, anything below that is a NO NO!
It’s amazing how many people don’t know what the hourly running costs of the premises are. You might think it’s great charging £30 P/H to customers, when it’s costing you £10-15 p/h to keep the door open.
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