Selling Price Markup
Posted by Chau Nguyen in Sep, 2014
What is the Selling Price Mark up?
When a company calculates the cost of a product or service, then adds a proportion onto that
cost; that is referred to as a Selling Price Mark up.
What is the Selling Price Mark up like?
The price mark up is like a profit margin-the excess of revenues over variable costs.
What is the purpose if a Selling Price Mark up?
The purpose of a Selling Price Mark ups are so businesses make a profit in their sales. The difference between the actual cost and the mark up is the total profit that is made on one particular item.
What are the different types of Selling Price Mark ups?
How much the Selling Price Mark up is on a product depends on the type of business that it is sold in. Pricing differs from the following types of firms:
- Service firms
- Wholesalers
- Retailers
- Producers
- Building contractors
What’s involved with applying a Selling Price Mark up?
When applying Selling Price Mark up, there two very important factors to consider; the cost of production of the product, and the demand in the market for the product. The amount added to the cost of the product will be the selling price. The percentage of the mark up is determined by factors such as: the intended amount of profit, the type of product and service being sold, the rate at which the product sells, and the amount of service being performed by the seller. Subsequent to analyzing the discussed factors, one must then decide the mark up percentage that will be used.
Where does applying the Selling Price Mark up fit into the sales process of a business?
The Selling Price Mark up must be decided when the company is purchasing the products or planning the service. Although many assortments of price mark ups exist, the most common is where one calculates the total cost to produce a product or service, and then adds a proportion of it onto the original cost. The amount that is added is the decision of the company. The reason of a Selling Price Mark up is to create a profit margin in order for the company can earn its target rate of return.
Selling Price Mark ups are favored due to its easy calculations and the need of modest information. It is very practical in the subsequent cases:
- Public utility pricing
- Finding out the design of the product when the selling price is predetermined, which is also known as product tailoring
- Pricing products that are designed to the specification of a single buyer
- “Monopsony Buying” – buyers have enough knowledge about the costs of a supplier. Thus, they may make the product themselves if they do not comply with the offered prices. So the relevant cost would be the cost that a buying company would incur if it made the product itself.
How does applying the Selling Price Mark up impact on different areas of the business?
Applying the Selling Price Mark up on a product or service virtually affects the entire business in every area. The price markup and cost of an item would impact decisions made in other areas. Most importantly, it affects the gross income the business receives (making either a profit or loss); this is usually the one aspect that decides on a businesses future. The cost of products or services may also affect the amount of staff that are able to be employed, projected sales, target rate of return, where the business is located (lease costs), and the rate of sales.
What terms are used when applying the Selling Price Mark up?
- Profit margin
- Mark up
- Variable costs
- Revenues
- Demand
- Marginal costs
- Discretion
Where can I find more information about applying Selling Price Mark up?
http://bizfinance.about.com/od/pricingyourproduct/a/Pricing-Your-Product-Using-Markup.htm
https://www.boundless.com/marketing/pricing/general-pricing-strategies/markup-pricing/
Who would benefit most from this knowledge?
This article targets primarily people with no experience in the area. Business owners would find this knowledge beneficial. Selling Price Mark up does not have any jurisdiction, does not have any cultural influence, nor does climate impact on this area. Organisations that would find this information useful may include: startups, small to medium enterprises, corporations, and government departments/government owned entities. Selling Price Mark up would be relevant to all industries that sell products or services.
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