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Price Modifiers - Gross Margin vs. Markup from Cost


This information applies to : Article ID
5929

Created/Updated
December 22, 2015

Category
Price Modifiers


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Version 5.2 Build 8

Question:

What is the difference between gross margin and markup % when applying a price modifier?

Solution:
"Gross Margin" is also known as "Margin" or "Points". Choosing this method will allow you to enter the gross margin as points in the "Enter Points" field that will be used to calculate the price of the item. As you enter the points, the unit price will be automatically calculated. Since the unit price will be calculated based on the unit cost, make sure that you can entered a value in the unit cost field.

Calculation for "Gross Margin":

PRICE=COST / ( (100-POINTS)/100 )

Price Modifier Example:

P05 for 5 points, P20 for 20 points.

Example of a 20 point margin on a product that costs $200
$250=$200 / ( (100 - 20)/100 )

"Markup from Cost" is also known simply as "Markup". Choosing this method will allow you to enter a % markup in the "Enter Percent" field that will be used to calculate the price of the item. As you enter the percent, the unit price will be automatically calculated. Since the unit price will be calculated based on the unit cost, make sure that you can entered a value in the unit cost field.

Calculation for "Markup from Cost":

PRICE=COST + (COST X PERCENT)

Price Modifier Example:

M05 for 5% markup, M20 for 20% markup.

Example of a 20% markup on a product that costs $200
$240=$200 + (200 X .2)


Notes:
You may ask yourself, "why use Gross Margin versus Markup from Cost"? Gross Margin is based on the sale price of the product, and Markup from Cost is based on your cost of the product. Your gross profit calculation is affected by this difference. Gross profit is calculated as ((PRICE-COST) / PRICE). In the examples above, if you use 20 % Gross Margin versus a 20% Markup from Cost your gross profit will be 20% and 16.67% respectively. These calculations explain how you could be marking products up 20%, but only having a 16.67% gross profit margin.

Web Reference: http://www.investopedia.com/ask/answers/102714/whats-difference-between-profit-margin-and-markup.asp

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