Definition
The term markup commonly refers to the practice of adding a percentage to costs in order to calculate selling prices.
Although some use the terms “margin” and “markup” interchangeably, this is not appropriate.
To get a better idea of the relationship between margin and markup, a 50% markup on a variable cost of $10 would be $5, yielding a retail price of $15.
By contrast, the margin on this item would be $5/$15, or 33.3%
The table shows the relationship between markups and margins for various products retailing at $10. [1]
Initial markup is the difference between the merchandise cost and the original retail price placed on the goods; expressed as a percentage of the retail value. [2]
Additional markup is the adding of another markup to the initial markup. It is the amount of a price increase, especially in stores operating under the retail inventory method of accounting. [2]
Additional markup cancellation is a downward adjustment in price that is offset against a previously recorded additional markup. [2]
Gross additional markup is the original amount of additional markup taken before subtraction of any additional markup cancellations to determine net additional markup. [2]
A keystone markup is one in which a markup of 50 percent of retail is obtained (i.e., the gross margin is equal to 50 percent of the sales price).
Maintained markup is the amount of markup that the retailer wishes to be maintained on a particular category of merchandise after allowing for markdowns or other reductions. It’s the difference between net sales and the gross cost of merchandise sold and net sales. [2]
References
- ^ Farris, Paul W.; Neil T. Bendle; Phillip E. Pfeifer; and David J. Reibstein (2010). Marketing Metrics: The Definitive Guide to Measuring Marketing Performance (Second Edition). Upper Saddle River, New Jersey: Pearson Education, Inc.
- ^ American Marketing Association, AMA Dictionary.