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.

To order this workbook, just click below… and there are other workbooks and tapes available in our product line that might interest and assist you in your business. For further information, please call us toll free at (800) 881-2580, FAX at (954) 720-7944, or E-mail to Help@mikeholt.com.