Forms of trade margins
Posted: Sun Dec 22, 2024 6:55 am
There is an absolute and relative form of markup. In the first case, it is expressed in a numerical value. For example, an entrepreneur purchased candies from a manufacturer wholesale at a price of 100 rubles per box, and sells them at retail for 130 rubles. The absolute markup will be 30 rubles.
But most often, entrepreneurs use the russian business email list percentage expression of this indicator. This is the relative markup. In this case, the trade markup can be determined using the following formula:
(Selling price - purchasing price) / purchasing price * 100%
In the candy example above, the relative markup is 30%.
The markup size can be minimal and maximal. It is typical for supermarkets to use minimal markup on most goods, since they receive their profit due to the speed of turnover and large volume of sales.
The maximum markup is practiced when selling expensive goods. In this case, the buyer pays not only for the item, but also for the use of the brand and comfort. This category includes vehicles, luxury items, including jewelry, seasonal goods, etc.
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Factors Affecting the Amount of Trade Markup
The size of the markup is influenced not only by the seller or brand, but also by the field of activity. For example, in convenience stores, the markup percentage will be approximately the same, since in this case it is easier to calculate the prices of products. In such places, the minimum markup is made only on bread and tobacco products.
In catering establishments, the amount of trade markup in the selling price of cheap products is somewhat higher. For example, inexpensive wine can be sold with a double or even triple markup, while expensive champagne "Veuve Clicquot" will have a markup of only 20%.
The geographical factor is also of no small importance, since the further the region of consumption is from the place of production of the product, the higher the entrepreneur's transport costs. Sellers are forced to increase the markup to compensate for their losses.
The restrictive instrument in establishing the trade markup of retail prices is competition in the market. With an increase in the number of competitors, the number of opportunities to increase the cost of goods decreases. And vice versa, if an entrepreneur is a monopolist in the market, then he can set the maximum possible markups.
What Affects Trade Markups
Source: shutterstock.com
To attract customers and push out competitors, some sellers use dumping, or deliberately lowering the price. This tool really increases sales, but at the same time it has a number of significant disadvantages. The key disadvantage is that no seller can constantly work at a loss, so at some point they will have to increase the markup, otherwise they can go bankrupt. The trade markup in wholesale prices for goods has a minimum size, since profit is achieved due to high turnover.
Also, not all potential buyers are ready to buy cheap. Some think that in this case the goods are probably of low quality or have some defects. Also, the tax inspectorate may show increased interest in such entrepreneurs, since artificially lowering prices on the market, as well as overpricing, is prohibited.
But most often, entrepreneurs use the russian business email list percentage expression of this indicator. This is the relative markup. In this case, the trade markup can be determined using the following formula:
(Selling price - purchasing price) / purchasing price * 100%
In the candy example above, the relative markup is 30%.
The markup size can be minimal and maximal. It is typical for supermarkets to use minimal markup on most goods, since they receive their profit due to the speed of turnover and large volume of sales.
The maximum markup is practiced when selling expensive goods. In this case, the buyer pays not only for the item, but also for the use of the brand and comfort. This category includes vehicles, luxury items, including jewelry, seasonal goods, etc.
Read also!
"9 Types of Customer Loyalty Programs"
Read more
Factors Affecting the Amount of Trade Markup
The size of the markup is influenced not only by the seller or brand, but also by the field of activity. For example, in convenience stores, the markup percentage will be approximately the same, since in this case it is easier to calculate the prices of products. In such places, the minimum markup is made only on bread and tobacco products.
In catering establishments, the amount of trade markup in the selling price of cheap products is somewhat higher. For example, inexpensive wine can be sold with a double or even triple markup, while expensive champagne "Veuve Clicquot" will have a markup of only 20%.
The geographical factor is also of no small importance, since the further the region of consumption is from the place of production of the product, the higher the entrepreneur's transport costs. Sellers are forced to increase the markup to compensate for their losses.
The restrictive instrument in establishing the trade markup of retail prices is competition in the market. With an increase in the number of competitors, the number of opportunities to increase the cost of goods decreases. And vice versa, if an entrepreneur is a monopolist in the market, then he can set the maximum possible markups.
What Affects Trade Markups
Source: shutterstock.com
To attract customers and push out competitors, some sellers use dumping, or deliberately lowering the price. This tool really increases sales, but at the same time it has a number of significant disadvantages. The key disadvantage is that no seller can constantly work at a loss, so at some point they will have to increase the markup, otherwise they can go bankrupt. The trade markup in wholesale prices for goods has a minimum size, since profit is achieved due to high turnover.
Also, not all potential buyers are ready to buy cheap. Some think that in this case the goods are probably of low quality or have some defects. Also, the tax inspectorate may show increased interest in such entrepreneurs, since artificially lowering prices on the market, as well as overpricing, is prohibited.