A markup calculation is a calculation that does its math from “the bottom up”. This means that it refers to the dollar value increase as a percentage of cost. The 2 codes that use the markup calculation style are W and L. The cost used is different for each one. W uses base cost, and L uses actual costs otherwise known as the landed cost.
COST + (COST x (Percentage))
COST + (COST x (Markup Percentage)) = 100 + (100 x 100%) = 100 + (100 x 1) = 100 + (100) = 200
COST + (COST x (Markup Percentage)) = 100 + (100 x 150%) = 100 + (100 x 1.5) = 100 + (150) = 250
The 100% markup scenario is a great example because most retailers know that a 100% markup is double the price. You can think of the calculation of markup as a way to compare the cost to the increase in terms of a percentage.
A common mistake in the calculation can happen if you are used to thinking about things in terms of percentage of cost. if I have a cost of $100 and a price of $300 it is intuitive to say that the price is cost x 300%. The problem with that is that the markup is only 200%. Test it using the formula above. Please look at our price code X for this type of calculation.
A margin calculation is a calculation that does its math from “the top down”. This means that it refers to the dollar value increase as a percentage of retail. The 2 codes that use the margin calculation style are H and M. The cost used is different for each one. H uses base cost, and M uses actual costs otherwise known as the landed cost.
Gross margin = (Revenue - Cost of goods sold) / Revenue
Gross margin = (Revenue - Cost of goods sold) / Revenue 200-100/200 = .50
Gross margin = (Revenue - Cost of goods sold) / Revenue 250-100 / 250 = .60