Marketing Essentials

Chapter 27: Pricing Math

Chapter Summaries

Section 27.1

• Gross profit is the difference between sales revenue and the cost of goods sold.
• The basic formula for a retail price is Cost + Markup = Retail Price.
• To determine the dollar markup on cost, multiply cost by the markup percentage on cost: C x MU% = MU$. To determine the dollar markup on retail, do the following: Subtract the markup percentage on retail from 100. Change that figure into its decimal equivalent by moving the decimal point two places to the left. Divide the cost by that decimal figure. That is the retail price. Calculate the dollar markup by subtracting the cost from the retail price.
• To calculate markup percentage on cost divide the markup by cost; to determine markup percentage on retail, divide the markup by the retail price.
• To calculate a markdown, multiply the markdown percentage by the retail price. To arrive at the sale price, subtract the dollar markdown from the original retail price.
• Maintained markup is calculated after setting the sale price. Subtract the cost from the sale price to get the maintained markup in dollars. To determine the maintained markup percentage, divide the maintained markup by the new sale price.

Section 27.2

• The procedure for calculating discounts is to multiply the price by the discount percentage. To calculate the net price, follow these steps: Subtract the discount percentage from 100 percent. Change that figure to its decimal equivalent. Multiply the decimal number by the original price to arrive at the net price.
• Trade discounts are often quoted in series, such as 40 percent and 20 percent. To calculate the net price with a series of discounts, do the following: Multiply the discount percentage by the price, and then subtract that figure from the price. Multiply the new balance by the second discount percentage, and then subtract that figure from the balance. The result is the net price after two discounts.