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How To Figure Percentage Mark Up Correctly

How to calculate a percentage markup from your cost is usually done wrong.

Most people do it this way…

If they want to mark something up 40%, most will multiply their cost by 1.40. Or, multiply their cost by 40% then add that number to their cost.

Same thing.

So, if they pay $5.00 for a product, they multiply $5.00 X 1.4 which would give me $7.00.

Ok, if they sell the product for $7.00, they would make a 40% profit.

WRONG!!!

To prove this, multiply $7.00 X 40%. You get $2.80. Subtract that from $7.00 and you should get your cost of $5.00. But, you don’t. You get $4.20 which is below your cost.

However, there is a simple formula for doing this the right way.

Let’s say your cost for a product is $5.00. You want to sell it at a 30% markup. You subtract the .30 from 1.00 and get .70.

You then divide the $5.00 by .70 and get $7.15. You can test this by subtracting 30% from $7.15 which is $2.15 and you get $5.00.

$7.15 X 30% = $2.15 then $7.15 – $2.15 = $5.00 or simpler $7.15 X .70 = $5.00

I know that’s a lot of numbers and I don’t want to confuse you, so use the formulas below to make it easier to compute percentage markup.

These are used with the starting costs.

For a 15% profit, divide the cost price by 0.85
For a 20% profit, divide the cost price by 0.8
For a 25% profit, divide the cost price by 0.75
For a 30% profit, divide the cost price by 0.7
For a 40% profit, divide the cost price by 0.6
For a 50% profit, divide the cost price by 0.5

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Michael Gravette

Michael Gravette is the founder of Safety Technology, a company that specializes in providing non-lethal self-defense devices. He is an Air Force veteran, serving in Vietnam in 1969 at Tan Son Nhut Air Base in Saigon. He started this business in 1986 with just one product, stun guns, operating from his home. Over the years, Safety Technology has grown to become one of the largest drop ship wholesalers of self-defense products in the country; offering a wide range of items including stun guns, pepper sprays, personal alarms, hidden cameras, and knives.

3 Responses

  1. You also have to add in the initial shipping cost for the product.
    Example you purchased 10 items from ST shipping was $10.00. Cost per item is $1.00.
    So, your $7.15 item is now $8.15. If you want your 30% profit from that $5.00 item.

    1. The cost in the example included the shipping cost. Shipping should be included in the cost, not added after you figure your markup.

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