Tips for Small Businesses
Tool for Testing Pricing Scenarios
Mon, 12 Oct 2009 8:08:57 MDT
Use the free Mark-up vs. Margin calculator to quickly test a range of pricing scenarios.
Mark-up percentage is the percentage above the cost of the item for which it is sold. For example, if an item costs $10, and you sell it for $15, your mark-up percentage is 50%. Your actual profit in dollars is $5 per item.
Profit margin is the percentage of the total selling price that is profit. Thus in the above example, your profit margin is 33.33%. ($5 actual profit/$15 selling price = 1/3 = 33.33%)
The easy to use Mark-up vs. Margin calculator, provided by Australian company The Business Solution Shop, enables you to enter a unit price (your cost) for an item, and then creates a table that contains selling price, profit margin, and actual profit for a range of mark-up percentages. You can set the tool to start calculating at between 5 and 25% mark-up, and then increment in 1,2,3,4 or 5 percentage points. The results table provides 27 different pricing scenarios based on the range you entered.
Of course there is much more to pricing decisions and profitability calculations than the simple mark-up vs. margin comparison. But, this simple tool can get you started thinking about different options. Give it a try.
