Basic Marketing: A Global Managerial Approach

Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e

Back Matter Appendix B: Marketing

Arithmetic

© The McGraw−Hill

Companies, 2002

Marketing Arithmetic 677

45 cents, or even 55 cents. In other words, there is no guarantee the markup will

cover costs. Further, there is no guarantee customers will buy at the marked-up price.

This may require markdowns, which are discussed later in this appendix.

Often it is convenient to use markups as percentages rather than focusing on the

actual dollar amounts. But markups can be figured as a percent of cost or selling

price. To have some agreement, markup (percent)will mean percentage of selling

price unless stated otherwise. So the 50-cent markup on the $1.50 selling price is

a markup of 33^1 ⁄ 3 percent. On the other hand, the 50-cent markup is a 50 percent

markup on cost.

Some retailers and wholesalers use markup conversion tables or spreadsheets to

easily convert from cost to selling price—depending on the markup on selling price

they want. To see the interrelation, look at the two formulas below. They can be

used to convert either type of markup to the other.

(4) Percent markup Percent markup on cost

on selling price
100%Percent markup on cost

(5) Percent markup Percent markup on selling price

on cost 
100%Percent markup on selling price

In the previous example, we had a cost of $1, a markup of 50 cents, and a sell-

ing price of $1.50. We saw that the markup on selling price was 33^1 ⁄ 3 percent—and

on cost, it was 50 percent. Let’s substitute these percentage figures—in Formulas 4

and 5—to see how to convert from one basis to the other. Assume first of all that

we only know the markup on selling price and want to convert to markup on cost.

Using Formula 5, we get

Percent markup on cost
^331 ⁄^3 %33^1 ⁄^3 %

100%  331 ⁄ 3 %

662 ⁄ 3 %

50%

On the other hand, if we know only the percent markup on cost, we can con-

vert to markup on selling price as follows:

Percent markup on selling price
 50% 50%

100%50%

150%

^331 ⁄^3 %

These results can be proved and summarized as follows:

Markup $0.50
50% of cost, or 33^1 ⁄ 3 % of selling price

Cost $1.00
100% of cost, or 66^2 ⁄ 3 % of selling price

Selling price $1.50
150% of cost, or 100% of selling price

Note that when the selling price ($1.50) is the base for a markup calculation,

the markup percent (33^1 ⁄ 3 percent 
$.50/$1.50) must be less than 100 percent. As

you can see, that’s because the markup percent and the cost percent (66^2 ⁄ 3 percent


$1.00/$1.50) sums to exactly 100 percent. So if you see a reference to a markup

percent that is greater than 100 percent, it could not be based on the selling price

and instead must be based on cost.

Markup conversions

Markdown Ratios Help Control Retail Operations

The ratios we discussed above were concerned with figures on the operating

statement. Another important ratio, the markdown ratio,is a tool many retailers

use to measure the efficiency of various departments and their whole business. But