Making Sense of Markups Beginning of Lesson of Mark ups. Think in a business owner mindset. How do business owners make a profit? Everything cost money! In a business, an owner want to be sure to make a profit to a successful business.

Pricing Products Does a retailer make the products it sells? Not Usually –buy from wholesalers/producers Does a Retailer buy a shirt for $15 and sell it to customers for $15? Why or Why not? If a retailer does not sell its products for more than what it cost them, what would happen? Begin a discussion with students about business mind markups. Can you name any products that you believe businesses markup to rip you off? The next 5 slides talk about America’s biggest rip offs according to a CNN report.

Rounding in Marketing Round money to the nearest 100th $435.34555 $435.35 Round Percentages to nearest tenth 97.567% 97.6%

Pricing Products To make a profit, what must a business do with the products they buy to sell? Mark them up

What is Mark-up Cost: the initial price paid by retailers/manufacturers for the products they sell Includes shipping costs Markup: adding a dollar amount (markup), as a percentage or a dollar amount, to the cost of the products purchased to sell to customers Used by retailers and wholesalers primarily Retail Price: The total price charged for a product sold to a customer, which includes the manufacturer's cost plus a retail markup.

Convert % to a Decimal Answer 8.5% = 0.085 Example: convert 180% Process: Drop the % symbol and move the decimal point 2 places to the left Example: Convert 75% to a decimal: Example: Convert 8.5% to decimal Answer 8.5% = 0.085 Example: convert 180% Answer 180% = 1.80

How to Markup Most difficult thing to determine in business is how to price your product Should every product a business sells be “marked-up” the same percentage?” No, every item is different and is based on: Customer Demand for a product What competitors are pricing their products for

Calculating Markup Amount Formula: Markup = Retail Price – Cost Difference between retail price and cost The markup may also be called the gross profit or profit margin

Example Discount Electronics purchased HDTVs for $489.56 each and sells them for $899.99 What is the markup amount on each TV? Markup = Retail Price – Cost Mark up = 899.99 – 489.56 = 410.43 Markup = Retail Price – Cost Mark up = 899.99 – 489.56 Markup = 410.43

Calculate Retail Price w/Markup Rate First calculate the markup amount Then add the markup amount to the cost to equal your Retail Price Two Step Formula: Markup = Cost * Markup Rate Retail Price = Cost + Markup

Example Wholesale Jewelers, Inc. sells digital watches to jewelry stores for $18.45 each. The suggested retail price is to add a mark-up rate of 160% of cost. What is the suggested retail price? Markup = * = Retail Price = + = 29.52 Read problem. Allow students time to calculate the answer. If you wish you can show your work on the board. The slide will display the answer. Markup = Cost * Markup Rate Markup = 18.45 * 1.6 Markup = 29.52 Retail Price = Cost + Markup Retail Price = 18.45 + 29.52 Retail Price = $47.97 47.97 Formula: Markup = Cost * Markup Rate Retail Price = Cost + Markup

Let’s Practice What is 170% of $125 cost 104% of $4329 cost is what? Markup Retail Price: 104% of $4329 cost is what? Markup: What is 170% of 125 Markup Retail Price: 125 * 1.70 = $212.50 104% of 4329 is what? 4329 * 1.04 = 4502.16 What % of 225 is 500? X * 225 = 500 X = 2.22 = 222% 125% of what number is 325? 1.25 * x = 325 X = 260

Calculate Additional Quantity You want to purchase more product than last year. Formula: Additional Quantity = Original order * converted % Total Order = Additional Quantity + Original order Example: You bought 95 hats last year and want to increase your order by 50% more this year. 95 X .50 = 47.50 47.50 + 95 = 142.50 round up/down How many are you buying? 143 items What is 170% of 125 Markup Retail Price: 125 * 1.70 = $212.50 104% of 4329 is what? 4329 * 1.04 = 4502.16 What % of 225 is 500? X * 225 = 500 X = 2.22 = 222% 125% of what number is 325? 1.25 * x = 325 X = 260

Example If our school store purchased 144 mittens last year, and this year we would like to purchase 30% more than last year. How many mittens do we need to order this year? 144 * .30 = 43.2 144 + 43 = 187 mittens

Markup as a Rate (Percentage) The markup rate is the markup expressed as a percent Businesses usually express the markup in one of two ways: As a percent of the Retail price As a percent of Cost

Markup as a Percent of Retail Price Businesses usually express the markup as a percent of the retail price (selling price) Formula: Markup rate = Markup / Retail Price Example: Luggage costs $54 and you want to sell it for $90, what is the markup rate based on retail price? Markup Amount = Retail Price – Cost $90-$54 = $36 markup Markup rate = Markup / Retail Price 36/90 = .40 or 40% markup Rate

Markup as a Percent of Retail Price A Florist buys roses for $10.99 a dozen and sells them for $24.95 a dozen. What is the markup rate based on the retail or selling price? Markup = Retail Price – Cost Markup Amount = 24.95-10.99 = 13.96 Markup rate = Markup / Retail Price Markup rate = 13.96/24.95 Markup rate = .5596 Markup rate = 56% Click 1 will display the example. Clicks 2 and 3 will display the formulas. Clicks 5 and 6 will display the answers. Markup = Retail Price – Cost Markup = 24.95-10.99 Markup = 13.96 Markup rate = Markup / Retail Price Markup rate = 13.96/24.95 Markup rate = .5596 Markup rate = 56%

Markup as a Percent of Retail Price Our school store purchases a printed Under Armour hooded sweatshirt from Gear for Sports for $37.50. We sell the hooded sweatshirt for $60.00. What is the markup rate based on retail price? Markup rate = Markup / Retail Price $60.00 – $37.50 = $22.50 markup $22.50 / $60.00 = .375 = 37.5% Again read example on Powerpoint. Give time for students to calculate answers before the correct answer is given.

Markup as a Percent of Cost Many businesses use the cost to figure the markup rate Formula: Markup rate = Markup / Cost Example: Rain suit cost $120 and you want to sell it for $162. What is the markup based on cost? First calculate markup: $162- $120 = 42 Next calculate markup rate: 42/120 = 35%

Practice Gear for Sports sells under armour t-shirts to the school store for $13.50 each. They have a suggested retail price computed by marking up the cost by 60%. What is the suggested retail price? Markup = Cost * Markup Rate 13.50 * .60 = 8.10 Selling Price = Cost + Markup Selling Price = 13.50 + 8.10 = $21.60 Read Problem. Allow students time to calculate their answer. Click two more times to show the formulas they use. Then the next two click will show the answers. Markup = Cost * Markup Rate 13.50 * .60 = 8.10 Selling Price = Cost + Markup Selling Price = 13.50 + 8.10 = $21.60

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