The Wholesale Forums

[Jaybone]

Sorry Pete but if you read that again, you'll find I'm right..

Margin - Profit divided by sale price
Eg £2.50(PROFIT)/£10(SALES VALUE) = 0.25 (25% gross profit)

You've bought the item at £7.50 and your profit is £2.50... Same as in the markup example

Markup - Sale price divided by cost price.
Eg - £10(SALES VALUE)/£7.50(COST VALUE) = 1.33 (33% markup)

There's a lot of things I won't pretend to know what I'm talking about but profit margins is something I definitely understand.

Cheers

Jay

[Pete]

Sorry, I thought you were buying for 2.50.

Actually, the term "margin" has different meanings in different types of product lines. Clothing and other soft goods people will use the term in general conversations differently then say someone in hardware or electronics. That is one reason I use the term Gross Profit. It is not only the correct accounting term, there is no confusion.

Used as you are it should be referred to as Gross Margin.

There are so many things that are industry or product category specific it is impossible to cover them here and doing so would only confuse more than enlighten. As I have mentioned in other postings and articles, it is best to "speak in the language of the industry in question", which I why I stick to the basics with Gross Profit, as it appears on everyone's Income Statement.

[Inferno Dropship]

what about if you are including paypal fees on topof your cost this makes it a little bit difficult to use that sum..

[Jaybone]

Well, that's the difference between gross and net profit. I always use Gross profit so in my example, £7.50 is the total cost of the item including ebay fees, paypal fees, postage costs, taxes etc. The item itself may only cost me £5 and £2.50 may be swallowed up by fees giving £2.50 GROSS profit. Net profit on the same item would be £5 but I don't look at that, I see it as a false figure which tells me nothing - like turnover, but that's another discussion altogether.

Going even more complex, I'd have to figure my monthly and yearly gross profit to get a true and accurate figure. Some fixed costs can't be worked into a unit price - monthly hosting fees for example. How do you work a monthly cost into a unit price without knowing for certain how many units you're going to sell in that month?

I was just trying to offer a very basic calculation for people who don't know about these kind of things to distinguish between markup and margin. Kinda sick of hearing people say they are making a 200% margin on such and such an item - no, that's impossible. You're making a 200% markup. The only way to make a 100% margin is to get something for free and sell it and even then you'll never get more than 100% margin as the profit can't be more than 100% of the sales value.

Sorry. Bad day. I'll keep my nose out in future lol.

Cheers

Jay