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Study Sheet of Markup and Markdown

Posted by Professor Cram in Markup and Markdown

Business Math Terms

  • Markup is the amount of money above their cost of a product or service that a business will charge for that product or service.
  • The Price of a product or service is what a business is charging after it applies a markup.
  • Markdown is the reduction in price of a product or service based on a percentage of the original price.
  • The Original Price of a product or service is what a business was charging before it decided to apply a markdown.
  • The Sale Price of a product or service is what a business is charging after it applies a markdown.

Markup from Cost

  • Also known as Cost-Plus-Markup
  • The Markup Rate is expressed as a percentage
  • Given two of Price, Cost, and MarkupRate:

    Price = Cost x (1 + MarkupRate)

    Cost = (Price)/(1 + MarkupRate)

    MarkupRate = (Price/Cost) – 1

Markup from Price

  • The markup rate is how much (i.e., what percentage) of the price is markup
  • Markup from Price gives a business a set percentage of profit across different products
  • The Markup Rate is expressed as a percentage
  • Since the Markup Rate is the percentage of the price that is markup, it can never exceed 100%
  • Given two of Price, Cost, and MarkupRate:

    Price = Cost/(1 – MarkupRate)

    Cost = Price x (1 – MarkupRate)

    MarkupRate = 1 – (Cost/Price)

Pricing Perishables

  • Assumes some portion of the product will spoil and become unsellable
  • A second round of markup that adds the cost of the unsellable product evenly to the balance of the sellable product
  • For example, if a 40-pound box of bananas yields 5 pounds of spoilage then the price on 35 pounds must be marked up to cover the cost of the spoiled 5 pounds
  • The Spoilage Rate is expressed as a percentage
  • Given two of NewPrice, OldPrice, and SpoilageRate:

    NewPrice = OldPrice/(1 – SpoilageRate)

    OldPrice = NewPrice x (1 – SpoilageRate)

    SpoilageRate = 1 – (OldPrice/NewPrice)

Markdowns

  • Businesses generally use markdowns to generate sales and/or clear inventory
  • The Markdown Rate is expressed as a percentage
  • Given two of SalePrice, OriginalPrice, and MarkdownRate:

    SalePrice = OriginalPrice x (1 – MarkdownRate)

    OriginalPrice = SalePrice/(1 – MarkdownRate)

    MarkdownRate = 1 – (SalePrice/OriginalPrice)

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Comments

3 Responses to “Study Sheet of Markup and Markdown”

  1. Ann Brekke says:
    April 7, 2010 at 12:26 pm

    Is there a chart available showing the multipliers for particular discounts off list price?

    ie 40% = .60 50 & 25 = .375 50 & 48 =.26

  2. Nicole Paige says:
    January 24, 2012 at 5:45 pm

    Is 25% markdown plus 15% markdown the same as 40% markdown

  3. Professor Cram says:
    January 24, 2012 at 11:05 pm

    That’s a great question, Nicole. The answer is NO, these are factors, and they are not additive. When you take a 25% markdown, then you have 75% left to apply the second markdown to. Taking 15% off 75% is not subtractive, it is the 75% that gets 15% off, so multiply 75% times 85% for the result – a bit higher than 60%.

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