P3D Re: margin vs. markup (from digest 3699)

[CanterMike@xxxxxxx]

In digest 3699 (OK, so I'm a little behind), sherwood writes, in part:

<< 
 I am guessing that I could sell the EMDE stereomount for $15 per 100 pieces
 if sold though dealers, or for $8 per 100 if I sold them directly.  At $8
 they would be competitive with paper mounts, but I don't have a massive
 budget for advertising, so I don't know how many would hear about the
 mounts.
 
 To qualify for dealer status, I would require an initial purchase of $500.
 After that you could buy however many you wanted.  I figure that anyone
 serious about being a dealer should be able to come up with that much.  A $7
 markup is about 87% dealer gross margin.
  >>

OK, we need a little work on our math here.  The statement "87% dealer gross" 
is a gross miscalculation.  There is a big difference between "Margin" and 
"Markup":  "Margin" is the profit expressed as a percentage of the selling 
price, while "Markup" is the profit expressed as a percentage of the net 
cost.  Therefore, while $7.00 profit is indeed an 87% Markup from a cost of 
$8.00 (7/8=.875), it is only about 47% Margin of the selling price 
(7/15=46.6666).  To make another example: if I buy something for $1.00 and 
sell it for $2.00, I have made 100% markup, but not 100% profit.  My margin 
is 50%.  If you gave me something for free and I sell it (regardless of what 
I sell it for, $1.00 or $1000.00), then I have made 100% profit.

(I don't mean to sound cranky here, but having spent the last 21 years in 
retail, this is something I am a little sensitive to.  Within the trade, 
these are often abbreviated: "20 up" means 20% markup, "make 20" means 20% 
margin.)

That said, 47% is not bad.  I'd like to have made 47% on everything I ever 
sold.....


And now back to our regular programming.....


Mike Canter