How to calculate retail markup for products
- fixed costs
- desired profit/salary
- return on any investment.
- Paul needs to estimate his fixed costs for the year ahead will be as follows:Overheads (i.e.) Internet/Phone $1,800
- He also needs to decide his annual income. To maintain a minimum lifestyle, Paul wants to earn $40,000 a year from the business
- Then he needs to choose a return on the original investment (assets, cash) he brought into the business. If you remember, in Step 1.12 Paul invested in his business a total of $12,838 and he wants a return on investment of $3,200 in the first year (almost 25% return).
- Based on selling 1,500 units over 12 months with a per unit cost of $30, Paul estimates he will need to purchase $45,000 of stock. The cost of his stock includes the delivery charges, import and custom duties. Assume that at the end of the year, Paul will have no stock remaining because he has sold it all.
- This is how Paul will calculate how much revenue he needs to generate
- Now Paul can calculate his gross profit by calculating the difference between his sales and cost of goods sold.
$$Markup = 100%$$In order for Paul to earn an income of $40,000 per year and achieve a return on his investment of $3,200, he needs to markup his stock purchases by 100%
DiscussionFrom these calculations, we can see that Paul’s gross profit is only $45,000 if he achieves the sales projection. This was calculated on 100% mark up.Alternatively, take a look at how to calculate retail markup for products in the Downloads section below.Do you think this is a reasonable markup for a new start up, or do you believe it should be higher or lower. Share your thoughts in the Comments area.
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