How to calculate margin

For each entrepreneur, the question of how to calculate the mark-up is interesting for at least two reasons. Firstly, in order to correctly conduct pricing of their goods. Secondly, in order to calculate at what prices competitors are purchased.

You will need

calculator, pen and paper

Instruction manual

1

What is the extra charge?

Mathematically, the margin is a percentage (less often - solid) premium to the purchase price of the goods. The mark-up added to the purchase price forms the final selling price. It is paid by the buyer. With a sufficient volume of sales, the margin should be enough for the entrepreneur not only to pay all the associated business expenses, but also to make a profit.

2

We carry out pricing

Regardless of what prices suppliers give, our final price should, first of all, suit buyers. Therefore, when conducting pricing, there are no clearly established premium coefficients. The mark-up for each type of product varies depending on many conditions.

In the current practice of trading in the retail segment, the following margins are usually applied:

• for food - from 10 to 35%

• for clothes and shoes - from 40 to 110%

• for household and office supplies - from 30 to 60%

• for souvenirs, jewelry - 100% and higher

• for cosmetics - from 30 to 70%

• for auto parts - from 30 to 60%

In order to calculate the sale price, we multiply the purchase price by the percentage of the premium. The resulting value is added to the purchase amount. For example, a supplier brought us a pad for a bumper on a car for 1940 rubles. For the final sale, we set a margin of 35%.

1940 * 35% = 679

Our selling price will be 1940 + 679 = 2619 (rub.)

The markup can be calculated by the reverse action. To do this, divide the selling price by the purchase price and subtract the unit. For example, we sell 1 kg of bananas for 45 rubles. The purchase price was 35 rubles.

Thus, the margin is 45/35 - 1 = 28.5 (%)

3

We calculate the purchase prices of a competitor

In order to calculate the competitor's purchase prices, we select the category of goods for comparison. Then we add one to the average mark-up for this type of product and divide the competitor's sale price by this amount.

For example, we have a direct competitor who sells shoes purchased from our supplier. We need to find out if the supplier gives him better prices. A pair of shoes from a competitor costs 3, 500 rubles. We know that under the terms of the contract with the supplier, the average mark-up on shoes can be no more than 60%. We calculate the purchase price.

3500 / 1.6 = 2187.5 rubles.

By comparing several product lines in this way, we get a common understanding of the competitor's purchase prices. Knowing the principles of mark-up formation, it is not difficult to calculate this indicator for any product.

We hope that now you can correctly calculate the margin at any time and in any store you like.