Archived - Calculating Margin and Markup (All)
Basically, "markup" is the amount of increase in price over cost. If your cost is $1.00, and the retail price is $1.20, the markup is $0.20, or 20%.
To generate that markup, you can easily find your sale price by adding the amount of the original cost to the amount of the markup with the following formula:
=Cost + (Cost * Markup Percentage)
Because you are providing the percentage markup, you specify the profit margin. In this example, the profit margin is $0.20 (the profit), which is 1/5 (20%) of the the retail price of $1.20.
However, "profit margin" is a fixed percentage profit, based on the final sale price. If your cost is $1.00, and you specify that you must have a final margin of 20%, you must make sure that the cost is 80% of the final price. $1.00 is 80% of 1.25, which retains the 20% profit margin. (For example, if you have a sale price of $1.20 and a cost of $1.00, the profit "margin" is only 17%, because your final sale price is $1.20 and your profit is only $0.20. $0.20/$1.20 = .166 or 17%.)
The formula that you would use to calculate the required sale price, to preserve a margin based on the final cost is:
Alternately, the formula you would use to calculate the margin, based on a final cost is: