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Markup / Gross Profit / How to Price Your Goods

Discussion in 'Business News & Resources' started by Pete, Nov 22, 2008.

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  1. rssales

    rssales

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    £10 inc VAT is £1.49, as the £1.49 is the VAT charge making it £10.


    £10+VAT basically means 10 + 17.5% which is £1.75
  2. greedyboy

    greedyboy

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    The VAT amount is £1.75 on £10 + VAT not £10 inc VAT.
  3. Inferno House

    Inferno House Banned Member

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    Ok got ya!

    Head protection helmets available on request :)
  4. alistair d

    alistair d

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    thanks pete for posting this useful information.

    i usually try and keep it very simple and basic my accounts as i am not much of a mathmitician :rolleyes:.
  5. SCOOBY67

    SCOOBY67

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    Mar 4, 2009
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    Hi i have just decided to work on this way, the only problem i have is do you include the vat first before you you add your mark up, as everything i buy includes vat
  6. coolstuff

    coolstuff

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    Intresting read.
  7. Jaybone

    Jaybone

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    May 27, 2009
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    Guys,

    I'm new in this business but not to business generally. One thing that surprises me is how many people are trading without a full grasp of what profit they're actually turning. For me, profit is what it's all about so I'll never make a product decision or agree to a discounted sales value without knowing what my margin is to 2 decimal places (on high value goods, those decimals count!)

    I have a spreadsheet which a few people here have asked for and been sent. With it you plug in your cost and sell prices and do the same for your carriage charges and the sheet works out your ebay fees, paypal fees and your profit in terms of decimal markup, percentage GP and actual sterling value.

    I find it helpful to re-calculate my margin quickly and see if a deal is viable or not.

    If anyone would like a copy, PM me or post your email address here and I'll be glad to send a copy through.

    Cheers

    Jay
  8. mrbritish

    mrbritish

    Joined:
    May 4, 2009
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    990
    thanks for the spreadsheet jaybone was just what i was after
  9. Jaybone

    Jaybone

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    May 27, 2009
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    The basic calculations are:

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

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

    Pete

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    That is not correct. If you buy for 2.50 and sell for 10 your Gross Profit is 75%.

    Of the selling price, 75% was profit. This is how Gross Profit is calculated. It is an accounting term that is arrived at by subtracting total cost of sales from total sales and appears as such on all profit and loss statements, statements of income, etc.

    This is all clearly spelled out above, your post is confusing the issue.
  11. Jaybone

    Jaybone

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    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
  12. Pete

    Pete

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    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.
  13. Inferno Dropship

    Inferno Dropship Banned Member

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

    Jaybone

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    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
  15. flibbage0

    flibbage0

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    Wow this forum is really good, Lots of helpful stickies. This is very helpful.

    Thanks :niceone:
  16. JermaineR8

    JermaineR8

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    http://www.dinkytown.net/java/ProfitMargin.html

    Just type how much the product cost in "Wholesale Cost" and how much profit you want from it in "Gross Margin %" and it will give you the price to sell your item at.

    There was me thinking if I wanted to make 10% profit off of a £10 item i sell it at £11 (which is 10% mark-up, not profit), but its actually £11.11
  17. Pete

    Pete

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    Here you go, don't need to be online with this -

    To make multiply by
    10% 1.11
    15% 1.18
    20% 1.25
    25% 1.34
    30% 1.43
    33.3% 1.50
    35% 1.55
    40% 1.67
    45% 1.82
    50% 2.00
    60% 2.50

    I've had them burned in my brain for decades.
  18. sourcing168

    sourcing168

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    Oct 16, 2008
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    1,183
    there is a formula for how to calculate your selling prce, it is" the cost/(1-x%)",
    for example, the total cost is USD10, if you want to get a profit of 27%, then the selling price should be 10/(1-27%)= 13.,69, etc
  19. smudgepost

    smudgepost

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    Feb 16, 2010
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    I know this is an old post but I signed up just to thank you for this simple, concise and useful tool. The only other thing I would appreciate clarity on is where VAT comes in to the cost/sale prices.

    Many of us buy at trade prices, we calculate our landed cost then do you add VAT then markup or add VAT on at the end?

    cost + markup + VAT or

    cost + VAT + markup?
  20. smudgepost

    smudgepost

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    Feb 16, 2010
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    This tool might be useful for above questions.
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