The simplest method.
HOW IT WORKS
Calculate your cost, add a margin.
WHAT MARGIN
Depends on your business and your market.
Retail typically works on a substantial markup because of overheads, returns and unsold stock.
MARKUP VERSUS MARGIN
Markup is added to cost. Margin is a proportion of the selling price.
They are different numbers and confusing them costs money.
A fifty per cent markup is a thirty-three per cent margin.
WHY IT MATTERS
Someone targeting a fifty per cent margin who applies a fifty per cent markup earns far less than they think.
WHEN COST-PLUS WORKS
Products with clear costs Commodity goods A starting point for any pricing
WHERE IT FAILS
It ignores what customers will pay It ignores what competitors charge It can leave money on the table for valuable work
WHAT TO DO
Use it as a floor, not as the answer.
Never price below it. Price above it where the value justifies.
