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Two ways to describe the same profit, and how to price for a target.

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Builds on: Percentages in Business (not open yet)

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From rounds of this course only: box, review and trial answers are left out. Once a skill has 40 tries, it compares your first 20 tries with your last 20.

• Gross margin % par 12 s not tried yet

  worked example

  A chair costs the shop $584 and sells for $730. What is its gross margin percentage?

  Answer: 20%

  1. Margin divides the profit by the price: ($730 − $584) ÷ $730 = $146 ÷ $730 = 20%.

• Markup % par 12 s not tried yet

  worked example

  A lamp costs the shop $170 and sells for $238. What is its markup percentage?

  Answer: 40%

  1. Markup divides the profit by the cost: ($238 − $170) ÷ $170 = $68 ÷ $170 = 40%.

• Convert markup to margin par 18 s not tried yet

  worked example

  A furniture maker prices everything at a 25% markup on cost. What is its gross margin percentage? Round to one decimal place if needed.

  Answer: 20%

  1. Imagine a $100 cost: the price is $125 and the profit is $25.
  2. Margin = profit ÷ price = $25 ÷ $125 = 20%.

• Price for a target margin par 17 s not tried yet

  worked example

  Cost of goods sold for a print run is $1,205. What price gives a 75% gross margin?

  Answer: $4,820.00

  1. Cost must be 25% of the price, so price = $1,205 ÷ 0.25 = $4,820.
  2. Check: ($4,820 − $1,205) ÷ $4,820 = 75%.

• Which is markup, which is margin? par 17 s not tried yet

  worked example

  An item costs the shop $200 and sells for $250. Which statement is correct?

  1. Markup 20%, margin 20%
  2. Markup 25%, margin 20%
  3. Markup 25%, margin 25%
  4. Markup 20%, margin 25%

  Answer: Markup 25%, margin 20%

  1. Profit is $50. Markup = profit ÷ cost = $50 ÷ $200 = 25%; margin = profit ÷ price = $50 ÷ $250 = 20%.
  2. When price is above cost, markup is the bigger percentage, because it divides the same profit by the smaller number.

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