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Markup Price Formula

Markup-Price-Formula

Markup Price Formula (Table of Contents)

  • Markup Price Formula
  • Markup Price Calculator
  • Markup Price Formula in Excel (With Excel Template)

Markup Price Formula

The Markup price can be defined as the additional price or profit garnered by the seller above the total cost of a good or service.

Here’s the Markup Price formula –

Markup Price Formula

Examples of Markup Price Formula

Let’s take an example to find out the Markup Price for a company: –

Markup Price Formula – Example #1

Let’s take the example of a company X whose overall sales revenue is $20000. The cost of goods sold by the company is $10000. The number of units sold by the company is 1000.

Markup Price for company X is calculated using below formula

  • Markup Price = (Sales Revenue – Cost of Goods Sold) / Number of Units Sold
  • Markup Price = ($20000 – $10000) / 1000
  • Markup Price = $10000 / 1000
  • Markup Price = $10 for each unit

Markup Price Formula – Example #2

Let us take an example of company Apple whose overall sales revenue is $500 million. The cost of goods sold is $100 million. The number of units sold is 10 million.

Markup Price for company Apple is calculated using below formula

  • Markup Price = (Sales Revenue – Cost of Goods Sold) / Number of Units Sold
  • Markup Price = ( $500 million – $100 million ) / 10 million
  • Markup Price = $400 million / 10 million
  • Markup Price = $40 million

Markup Price Formula – Example #3

Let us take an example of company Crompton Greaves whose overall sales revenue is $50 million. The cost of goods sold is $20 million. The number of units sold is 5 million.

Markup Price for company Crompton Greaves is calculated using below formula

  • Markup Price = (Sales Revenue – Cost of Goods Sold) / Number of Units Sold
  • Markup Price = ( $50 million – $20 million ) / 5 million
  • Markup Price = $30 million / 5 million
  • Markup Price =$6 million

Explanation of Markup Price Formula

The markup price can be defined as the additional price or profit garnered by the seller above the total cost of a good or service. It can also be defined as the difference between Average Selling Price per unit and Average Cost Price per unit.

Markup price = ( Sales Revenue – Cost of Goods Sold ) / Number of Units sold

Markup price = Sales Revenue / Number of Units Sold – Cost of Goods Sold / Number of Units Sold

Markup Price = Average Selling Price per unit – Average Cost price per unit

The markup price is used generally by companies to determine what price they should charge to the consumer so that they can turn their business into a profit.

Significance and Use of Markup Price Formula

Markup price is one of the important metrics used by companies and businesses to figure out their pricing strategy. The ultimate objective of any business is making a profit and hence markup price should be as such so that cost of goods sold and operating expenses are taken care of so that the overall company turns a profit. The firms have to figure out the extent of a price that can be stretched which consumers will buy and there will not be any drop in sales. Hence that should be the extent of markup which would make the business profitable. The higher selling price that can be charged by the firm indicates that it has the greater consumer confidence even if it is charging a higher price. Markup price is essential for a company that starts its operations because it helps in estimating cash flows.

Markup price is different than the Gross Profit Margin. Markup price is generally used by companies to choose a selling price so that it covers its production costs and turns a profit. While Gross Profit Margin is used to figure out the profitability of a firm mostly by investors. Another way of differentiating them is that markup is a cost multiplier while margin is a percentage of selling price. Markup is a function of cost while the gross margin is a function of sales. Markup is defined from the perspective of the buyer while Gross Profit Margin is defined from the perspective of the seller.

One can figure the out the difference between Gross Profit Margin and Markup price from the following: –

  • To achieve a Gross Profit Margin of 10%, the Markup Price Percentage by the company should be 11.1%
  • To achieve a Gross Profit Margin of 20%, the Markup Price Percentage by the company should be 25%
  • To achieve a Gross Profit Margin of 30%, the Markup Price Percentage by the company should be 42.9%
  • To achieve a Gross Profit Margin of 40%, the Markup Price Percentage by the company should be 80%
  • To achieve a Gross Profit Margin of 50%, the Markup Price Percentage by the company should be 100%

Markup Price Calculator

You can use the following Markup Price Calculator

Sales Revenue
Costs of Goods Sold
Number of Units Sold
Markup Price =
 

Markup Price =
Sales Revenue − Costs of Goods Sold
=
Number of Units Sold
0-0
= 0
0

Markup Price Formula in Excel (With Excel Template)

Here we will do the same example of the Markup Price formula in Excel. It is very easy and simple. You need to provide the three inputs i.e Sales Revenue, Cost of Goods Sold and Number of Units Sold

You can easily calculate the Markup Price using Formula in the template provided.

Markup Price Example

You can download this Markup Price Template here – Markup Price Formula Excel Template

Conclusion

Markup price is the additional price that the company charges the consumer over and above the cost price so as to turn a profit for its business. It can also be defined as the difference between Average Selling Price per unit and Average Cost price per unit. Markup price is different than gross margin as markup price is from the perspective of buyer while Gross Profit Margin is from the perspective of the seller.

Recommended Articles

This has been a guide to a Markup Price formula. Here we discuss its uses along with practical examples. We also provide you Markup Price Calculator with downloadable excel template. You may also look at the following articles to learn more –

  1. Bond Equivalent Yield Formula
  2. ROE Formula Calculator
  3. Formula for Net Working Capital
  4. Perpetuity Formula With Template

The post Markup Price Formula appeared first on EDUCBA.



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