Formula

 BBS: Inland Empire Archive
Date: 07-03-92 (15:11)             Number: 2077
From: DON KROUSE                   Refer#: NONE
  To: JIM TANNER                    Recvd: NO  
Subj: Formula                        Conf: (2) Quik_Bas

JT>I'm tinkering with a database program where I need to
JT>figure a "markup" on a
JT>item then show what the item will sell for at retail.  Here's an example:

JT>Cost ...... $1.50
JT>MarkUp .... 30%
JT>Price ..... $...

JT>Can someone share the formula (code) to do this.?

Hi Jim,

There are two different approaches to your question, and there are
entire volumes and entire college courses devoted to the subject of
pricing. I will give a much abbreviated version. <g>

COST BASED: (markup)

     Add a percentage of the cost to the to determine the price.

           PRICE# = COST# + (COST# * MARKUP# / 100)     \
                                                          same
           PRICE# = COST# * (1 + MARKUP# / 100)         /

     Using this approach the price for your example would be $1.95.

     You can determine the MARKUP percentage for this method by dividing
     the PRICE by the MARKUP and then subtracting 1.

           MarginPercent# =  PRICE# / COST# - 1

                       .3 =  1.95 / 1.5 - 1

PRICE BASED: (margin)

     This is the most commonly used method. The objective is to find the
     price that when the margin is subtracted from it equals the cost.

           PRICE# = COST# / (1 - MARGIN# / 100)

     Using this approach the price for your example would be $2.14.

     I think this is the way most people intuitivly think. If the price
     is $10.00 and the margin is 40% then it cost $6.00.
        i.e. 10 - 40% = 6

     This thinking does not work if the first method is used.
     (using your numbers from above)

             1.95 - 30% = 1.365  < COST BASED METHOD

      It does work if the second method is used.

             2.14 - 30% = 1.50   < PRICE BASED METHOD

     You can determine the MARGIN percentage for this method by
     subtracting the COST divided by the PRICE from 1.

           MarginPercent# = 1 - COST# / PRICE#

                .3 = 1 - 1.50 / 2.14

Both methods are valid, however the MARGIN method is more commonly used.

The MARKUP/MARGIN must cover the VARIABLE costs of the item + part of
the FIXED costs of doing business, else see Chapters 7,11 and 13.

I suggest that you ask whoever you are writing the program for which
method they use or, if this is a new venture, consult an accountant.

I hope it helps,

Don
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