How to calculate a percentage markup from your cost is usually done wrong.
Most people do it this way…
If they want to mark something up 40%, most will multiply their cost by 1.40. Or, multiply their cost by 40% then add that number to their cost.
Same thing.
So, if they pay $5.00 for a product, they multiply $5.00 X 1.4 which would give me $7.00.
Ok, if they sell the product for $7.00, they would make a 40% profit.
WRONG!!!
To prove this, multiply $7.00 X 40%. You get $2.80. Subtract that from $7.00 and you should get your cost of $5.00. But, you don’t. You get $4.20 which is below your cost.
However, there is a simple formula for doing this the right way.
Let’s say your cost for a product is $5.00. You want to sell it at a 30% markup. You subtract the .30 from 1.00 and get .70.
You then divide the $5.00 by .70 and get $7.15. You can test this by subtracting 30% from $7.15 which is $2.15 and you get $5.00.
$7.15 X 30% = $2.15 then $7.15 – $2.15 = $5.00 or simpler $7.15 X .70 = $5.00
I know that’s a lot of numbers and I don’t want to confuse you, so use the formulas below to make it easier to compute percentage markup.
These are used with the starting costs.
For a 15% profit, divide the cost price by 0.85
For a 20% profit, divide the cost price by 0.8
For a 25% profit, divide the cost price by 0.75
For a 30% profit, divide the cost price by 0.7
For a 40% profit, divide the cost price by 0.6
For a 50% profit, divide the cost price by 0.5