How to Mark Up Prices From Wholesale to Retail
The markup from the wholesale price you pay for goods to the retail price at which you sell those goods is the lifeblood of your business. You want to set prices that are competitive and at the same time make enough profit margin to cover your costs and leave a profit for the business. Determining markup involves first determining your desired profit margins and then doing the markup math.
Before you can calculate the markups on your products, you need to find out the typical retail prices of the items you plan to sell. The wholesale supplier may provide some average retail pricing information or you may need to do your own research. Depending on the types of products, you can research prices online or make in-person visits to businesses that sell the same or similar products. You probably have some flexibility in the pricing of your products, but you do not want to be too far out of line compared to your competitors.
Once you have decided on the retail pricing of your products, compare the sales prices with the wholesale costs to determine your expected profit margin. Profit margin can be listed both in dollar terms and as a percentage. For example, a product will sell for $25 each and your wholesale cost is $10. The profit margin will be $15 per sale. As a percentage, the profit margin is 15 divided by 25, or 60 percent. Profit margin is always calculated from the retail price and is the money coming in to run your business.
The math to convert profit margin percentage to markup percentage is to divide the wholesale price by one minus the profit margin percentage. For the $25 item that cost $10, the $10 would be divided by one minus 0.60 -- the profit margin -- or $10 divided by 0.40, which equals $25. If you want to have a 30 percent profit margin, the wholesale price would be divided by 0.70. The formula works for any profit margin percentage you want to use to calculate price markups.
If your business sells more than a few different products, you will want to develop some form of database to keep track of wholesale prices, retail prices and profit margins. Different categories of products may have different profit margins and markup calculations. For a small business with a limited number of products, a spreadsheet that you keep up-to-date may be enough. For a larger business, the use of a database integrated with you computerized sales system may be the best solution to keep track of product pricing.