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An excerpt has been made from this article.retail sale in detailby Ronald L. Bond, available atUnternehmerpresse.com
You often see or hear ads from retailers promising "quality products at a fair price." Now, what is a "fair price"? As you get into retail, you quickly realize that there really is no universally accepted definition. Most of the time, the answer is, "It depends..." It depends on how much you paid for the merchandise, who you bought it from, how much your competitors charge, your overhead, sales volume, and a hundred other variables. .
The way you price your products will be one of the most important decisions you will make, as it directly affects the most important variable, profit. You must strike a delicate balance and set a high enough price to achieve
a reasonable profit margin, but low enough to keep your products affordable and competitive.
The ethics of marking
Although there is no hard and fast rule for pricing products, most retailers use a 50 percent markup, known in the industry as the cornerstone. In plain language, this means that your costs to determine the sales price are doubled. Because the markup is expressed as a percentage of the retail price, doubling the cost means a markup of 50 percent. For example, if the cost of an item is $1, the sales price is $2. Fifty percent of $2 is $1, which is your profit margin.
This markup definition was probably developed to avoid using a term that allows for 100% increments. Most consumers would be horrified that you were selling something for twice what you paid. They would like to ask why you are not wearing a weapon and a mask. Most consumers have not been exposed to the myriad of retail costs and are used to thinking in terms of the net profit margins they have heard about in the media. For example, an article in the business section of a newspaper might report that Mega-Mart had sales of $500 million and a net profit of 4 percent. An uninitiated reader might conclude that Mega-Mart only offers its products at 4 percent. Actually, net profit is calculated after subtracting overhead from gross profit (total sales minus cost of goods sold).
With these common pricing misconceptions in the buying public, don't be surprised if some of your customers think you're Jack the Ripper when they hear about your markup.
While it's true that the higher volumes make up for the lower prices to some degree, unless you can sell as much as a Kmart or Wal-Mart. While doubling the price may sound outrageous, it doesn't translate to excessive profit when you factor in the cost of rent, taxes, insurance, supplies, labor, etc. that you must pay
Sometimes you need to sell an item at a lower markup if you feel you can't compete with a full markup from Keystone. However, be careful not to price too many items this way or you won't find anything for yourself at the end of the year. You can try to compensate by marking some items a little higher to make up for the lower marks on others. You can do this when you can get a special discount or buy items directly from a manufacturer. If you choose to use a different marking than the default keystone
(50 percent), here's a quick way to calculate your selling price:
Sales Price = [(Item Cost) ÷ (100 - Markup Percentage)] × 100
Let's say an item costs you $10 and you want to use a 35% markup. The sale price is then calculated as follows:
Sale Price = [(10.00) ÷ (100 - 35)] × 100
Sale price = (10.00 ÷ 65) × 100 = $15.38
Don't multiply the cost by 35 percent and add that amount to the cost. That gives a retail premium of 17.5 percent, not the desired 35 percent.
Don't neglect freight costs in your cost of goods. If your competition allows it, add the cost of freight before applying the markup. However, most of the time you simply need to add the freight to the added price and only recover the freight cost.