Profit Margin Vs Profit Markup

Discussion in 'Growing and Managing a Business' started by fearonh, Feb 5, 2014.

  1. fearonh

    fearonh
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    Profit Margin V Markup

    I was wondering if anyone can explain any advantages in using a Margin based pricing system as opposed to a Markup based one.

    I've read a bit about it, and the general consensus seems to be that Margin is better. To find out why, I'm struggling to see major clarity. The main advantage seems to be simply that it gives you more profit, however this seems a bit naive of a common business marketplace. I'm sure that people can use it to make more profit, but I think a lot of small businesses are more dependent on keeping their prices atoned to the marketplace, and not blindly putting a % Markup flatly across something to make more profit.

    In other words, saying 50% Margin makes more profit for the company than 50% Markup is of course true, but not many businesses can just base their prices on a simple decision like that. Most would have to adjust their profit margins/markups slightly to suit various factors, finding an overall balance in their selling prices. I'd love to just decide today that I'm going to change all my Markup %'s to Margin %'s, and reap all this extra profit that I'd make. If I did this though, my prices would be extortionate, and I'd be closed in a week! To me that advantage doesn't exist

    For our business, we traditionally only deal with Markup. Our prices tend to be adjusted to match, or slightly undercut the common prices for our products. In other words, we don't just say "let's make 30% Markup", we tend to have minimum levels for various categories of products, then adjust our profit markups to match what the current demand, and the current competition are supplying for. So our markups can range from 15% for highly priced and competitive items, right up to 70% for smaller, less scrutinised items.

    At the moment, we are currently completely restructuring our prices to try to streamline our system. Whilst we are going to the trouble of doing this, we were wondering would it be a good time to switch to a Margin system? I'm struggling to find any concrete advantages for us personally.

    I should also state that we deal with 2-3 prices for every item, catering for 3 types of customers ( standard, trade, and highly active trade). Due to this, markup has always been very convenient to us.

    Any tips or advice would be greatly appreciated.

    Many Thanks
    Henry
     
  2. marriott

    marriott
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    Thanks for sharing this valuable information and its a great topic of discussion.
     
  3. matthewgayle

    matthewgayle
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    Good tips shared by you. Thanks for that. In future it will be helpful for me.
     

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