Calculating Markup for Dummies

Calculating a retail markup

Many an intrepid entrepreneur is convinced he or she can make a killing in our service economy by selling things. Might as well, folks, now that well-paying manufacturing jobs are going the way of the dodo and the passenger pigeon! Of course, a lot of those would-bes come to the sales floor unprepared (the result of journalism and English Lit degrees, perhaps). Some are even so... benighted that they need help on the absolute basics of retail sales, asking the internet community to help them figure out "How to Markup from Cost."¹ If they're lucky, they won't be getting that help from the likes of Alicia Bodine at eHow.com. That wouldn't be helpful at all.

Alicia appears to understand the basic concept of a markup, or at least she managed to find some sort of reference (perhaps written at a fifth-grade level?) that could explain to her that

"If you want to make a profit in your business, you have to understand how to mark up from cost..."

No duh, Alicia: but how does the reader do that? Well, Ms Bodine is there to help them, sort of, but only if they happen to own an HP12C Platinum Calculator; although we believe that the instructions she provides aren't quite correct: Turn it on Enter the cost Enter the price you want to charge Besides the abject stupidity of step one (it's mainly there because eHow requires at least three steps for any how-to), there's also the error of entering the price you want to charge instead of actually marking up from cost! These instructions calculate the markup (already) being charged, not the retail price. Heaven help you if you can't recognize a keystone or double keystone without a calculator, by the way... Alicia, realizing that she hadn't met her minimum word count yet, vomits out a treatise (of sorts) on "What you want your profit to be," filled with such wondrous "information" as

"Divide your total number of products by how much money you want to make for the year. If you want to make $50,000 and you have 10,000 items you believe you can sell you would compute the mark up cost like this: 10,000 divided by 50,000 = 5. So you would want to mark up each item $5. In small products this isn't reasonable, and in large products this isn't enough. You are going to have to adjust the prices of the small and large products so that your totals average out to $5. "

Gee: people go to business school and take seminars costing thousands of dollars per day, yet Alicia Bodine is giving these secrets away for free! And it's worth every penny!

No, Alicia, that's not how you mark up from cost. If you want to mark up an item with a cost of $18.76, you

1. Convert the markup percentage to a decimal, e.g., 75% becomes 0.75
2. Add the decimal to 1.0 -- in our example, 1.75
3. Multiply the cost by the result: $18.76 * 1.75 = $32.83

There: wasn't that simple? and you didn't need a 60-dollar calculator to do it! That's not to mention that you also didn't need half-assed business advice from a wannabe foodie like Alicia, whose true calling is apparently to be a Dumbass of the Day.

¹ The original has been deleted by Leaf Group, but can still be accessed using the Wayback machine at archive.org. Its URL was   ehow.com/how_2364388_markup-from-cost.html

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