How to Calculate Markup Percentage

By definition, the markup percentage calculation is cost X markup

percentage. Then add that to the original unit cost to arrive at
the sales price. The markup equation or markupformula is given below in
several different formats. For example, if a product costs $100, then
the selling price with a 25% markup would be $125.
Gross Profit Margin = Sales Price – Unit Cost = $125 – $100 = $25
Now that you have found the gross profit margin, let’s look how to
calculate markup percentage:

Markup Percentage = Gross Profit Margin/Unit Cost = $25/$100 = 25%

The purpose of markup percentage is to find the ideal sales price for your
productsand/or services. Use the following formula to calculate sales
price:
Sales Price = Cost X Markup Percentage + Cost = $100 X 25% + $100 =
$125

As with most things, there are good and bad things about using markup
percentage. One of the pitfalls in using the markup percentage to
calculate your prices is that it is difficult to ensure that you have taken
into consideration all of your costs. By using a simple rule of thumb
calculation, you often miss out on indirect costs.
(NOTE: Want the Pricing for Profit Inspection Guide? It walks you
through a step-by-step process to maximizing your profits on each
sale. Get it here!)
Markup Percentage Calculation Example
For example, Glen started a company that specializes in the setup of
office computers and software. He decided that he would like to earn a
markup percentage of 20% over the cost of the computers to ensure that
he makes the proper amount of profit. Furthermore, Glen has recently
received a job to set up a large office space. He estimates that he will
need 25 computers at a cost of $600 a piece. In addition, Glen will need
to set up the company software in the building. The cost of
the software to run all the computers is around $2,000. If Glen wants to
earn the desired 20% markup percentage for the job, then what will he
need to charge the company?
(Looking for more examples of markup? If so, then click here to access a
retail markup example.)
Step 1
First, Glen must calculate the total cost of the project which is equal to
the cost of software plus the cost of the computers. Find the markup
percentage calculation example below.
$2,000 + ($600*25) = $17,000
Step 2
Then, Glen must find his selling price by using his desired markup of 20%
and the cost calculated for the project. The formula to find the sales price
is as follows:

Sales Price = (Cost * Markup Percentage) + Cost

or
Sales Price = ($17,000 * 20%) + $17,000 = $20,400

In conclusion, Glen must charge the company $20,400 to earn the return
desired. This is the equivalent of a profit margin of 16.7%. For a list of
markup percentages and their profit margin equivalents scroll down to
the bottom of the Margin vs Markup page, or you can find them using the
above markup formula. Using what you’ve learned from how to calculate
your markup percentage, the next step is to download the free Pricing
for

Your example of markup % for Glen at the computer company is wrong. He will
not earn a 20% markup over cost.
The correct amount would be $21,250 – NOT $20,400.
The proper formula would be:
Computers (15,000) + Software (2,000) / (1 – .20 (Markup %) = $21,250.

REPLY

•
Yes, the correct ans is $21,250.
the Calculation on Calculator is $2000+ $600*25 = $17000/.80 =$21250.
Gross Profit Margin Ratio Example
Joe is a plumber in Houston, Texas. He has recently started
his company and has a lot to learn. Joe thinks he may be able to cut back
on raw materials by changing his construction process. Essentially, he is
wondering what is his gross profit margin rate is. He evaluates
his company financials for relevant information. Once the proper
numbers are found uses the gross profit margin ratio calculator on his
Texas Instruments BA II. His results are shown below.
Gross Profit Margin Ratio Calculation
Calculate the gross profit margin ratio using the following formula:
Gross profit = revenue – cost of goods sold
For example, a company has $15,000 in sales and $10,000 in cost of
goods sold.
Use the following formula to calculate the percentage of sales:
Gross profit margin ratio = (15,000 -10,000) / 15,000 = 33%
In conclusion, for every dollar generated in sales, the company has 33
cents left over to cover basic operating costs and profit.
Gross Profit Margin Ratio Analysis
The gross profit margin ratio analysis is an indicator of a company’s
financial health. It tells investors how much gross profit every dollar
of revenue a company is earning. Compared with industry average, a
lower margin could indicate a company is under-pricing. A higher
gross profit margin indicates that a company can make a
reasonable profit on sales, as long as it keeps overhead costs in control.
Investors tend to pay more for a company with higher gross profit.
Gross Profit Margin Ratio Analysis Disadvantages
Many see gross profit margin disadvantages despite the common use of
gross profit margin ratios. The issue is that certain production costs are
not entirely variable. Some believe that only direct materials should be
included as they are the only variable to change in proportion to revenue.
When applied, this new gross profit margin causes the transference of all
other related costs to operational and administrative cost categories. This
tends to cause a higher gross margin percentage than originally. Certain
industries and businesses apply it instead of the more common
application. Use the following formula:
Gross Profit Margin = (Revenue – Direct Materials) / Revenue
Easily discover if your company has a pricing problem. As you analyze
your gross profit margin, it’s an opportune time to take a look at you
pricing. Download the free Pricing for Profit Inspection Guide to learn
how to price profitably.