**FINANCIAL MANAGEMENT - MARKUP
**

Don’t confuse markup with
profit. If you want a certain percentage of profit and you
estimate your costs and add the desired profit percentage as
markup, you’re making an error. Your profit should be a
percentage of the **selling price**, not a **markup**
on cost.

**To determine markup (and
profit): **

- Estimate your costs.

- Deduct the desired profit
percentage from 100 percent.

- Divide the desired profit
percentage by this figure.

- Multiply your cost by the
result. This will be your profit.

**Example:** Cost of
job is $100,000. Desired profit percentage is 15%. Subtract 15%
from 100%. Balance is 85%. Divide 15% by 85%. Quotient is 17.65%.
Multiply $100,000 by 17.65%, or .1765. The result is $17,650.
Estimated selling price of $117,650 gives you a 15% profit.

By using this formula, you will
see that a profit of 25 percent on the **selling**
price is greater than a 30 percent markup on **cost**.

**NOTE:** For other
closely related topics, be sure to review the section on Job
Costing (#51 & 52), and Profit (#55 - to be published later)
in this series of articles on Financial Management.

**Mike Holt’s Comment:**
This newsletter was extracted from my Business Management and
Management Skills’ Workbook. Watch for our next newsletter,
and as always, we encourage your comments and feedback. Send us
your real-life experiences. Please respond to Barbara@mikeholt.com.

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