Mark Ups and Margins

jewels.pjewels.p Font Of All KnowledgePosts: 1,774Registered
Hi,

I have searched through the forums and looked for posts on Mark Ups and Margins but still dont understand when you use mark ups and when you use margins?

I know Mark Up % is the profit as % of the cost and Margin % is the profit as % of selling price (It is isn't it?) but why dont we just use one or the other?:confused1:

Comments

  • CullenCullen Experienced Mentor Posts: 592Registered
    Sometimes a company knows it cannot sell an item outside of a certain price range, so essentially it sets the sale price first and then computes what the profit margin will be if they choose a particular price.

    If you have a similar product to your competitors, and operate in the same marketplace, like the internet, you are unlikely to have a strong sales performance if you are selling at a much higher price.

    So if you manufacture widgets and sell them in a marketplace with other widget manufacturers, you will need a target selling price that will allow you to compete. So you may have to adjust your profit margin on different items in line with your competitors.
  • ToffeemadblueToffeemadblue Well-Known Posts: 102Registered
    In my experience it comes down the type of business. Retailers and traders like mark ups because they are simple to operate in fast changing price environements. Wholesalers and manufacturers have large fixed costs and focus more on the ammount of margin generated by various actual or potential business. Where I work (a wholesaler) we examine the gross gross margin - actual purchase price to list price and net gross margin - actual purchase price to actual sale price, the first measures the sucess of our purchasing the second the sucess of the selling.
    Hope that helps
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