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About James E. Dion
Expertise
Most questions about trends in specialty retail, how customers are changing both in the US and Europe. Demographics for all countries as they relate to retail trends and issues. Store Operations, Buying and Merchandising.
Experience
Past/Present clients
Microsoft, Harley-Davidson, Ritz-Carlton, Hummer, Ace Hardware, Coleman Spas, Aldo, Intel, Dell, Safeway, New Balance, IBM, Kodak, Bata International, Nortel Networks, Honey Baked Ham Co., Man Alive, Highsmith
B.S Chicago State University
M.S. Chicago State University
PhD (abd) Illinois Institute of Technology
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You are here: Experts > Industry > Retail Industry > General Retail Business Issues > Margin
Expert: James E. Dion
Date: 1/17/2008
Subject: Margin
Question
Hi James,
When you refer to margin of 60 % for retailer do you refer to mark up on cost (meaning the gross profit on cost) or do you refer to gross profit on sales.
My understanding is that a mark up usually means the gross profit (on cost) that the manufacturer (or distributor or retailer) wants to make on goods. Thus, say it cost the manufacturer $14.26 (both direct and indirect costs). If we want to sell and make a profit of $5.69, i.e., selling price = $19.95, the mark up (on cost) is 39.90% (e.g. 14.26 X 39.90%= 19.95). If instead we want to have a markup of 50%, then the selling price should be $21.39.
Now, the method to calculate the gross profit on sales is cost 5.69 divided by 19.95 the sale price = 28.52% the gross profit on sales. (e.g. 5.69 divided by 19.95= 0.285213 X 100 = 28.52%)
Is this the correct method and is the 60% that you referred to is markup on cost.
Thanks for your reply.
Answer
Denis,
Margin in retail is always expressed as a percentage of retail selling price, never cost. So, if I have a cost of 14.26 and I need to make a 60% margin as a retailer, my selling price would have to be $35.65 or rounded up to $35.95 or $36.00 which would give me a 60% margin on selling. Retailers do not use cost as the basis for computing margin.
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