Home Consulting Services Articles Training VIM Links About Us Contact Us
What's New
Current Projects


Selkirk & District Community Learning Centre
Computer Lending Library
Virtual Incubation Manitoba
Smart Partners
Articles

Setting a Retail Price - « back to Articles

There are two key pricing issues that will affect the success of your retail business.
  1. What your customers buy often depends on the price you charge.
  2. How much your customers buy affects the profitability of your business.
Retail pricing can be defined as:

The business of selling to a consumer by applying a selling value to the item to be sold.

The right selling price is one that is attractive to customers and allows you to make a profit on a transaction. Staying competitive while ensuring that your selling price more than needed to cover your operating and selling costs is what will determine the final selling price.

Markups & Margins

Retailer's will often use two important terms:
  • markup cost
  • margin on selling
It is important to understand there is a difference between them when you are setting your selling price.

Markup

The difference between cost of merchandise and retail price

Cost of merchandise

The base invoice price minus quantity discounts, plus any freight or duty charges.

To calculate markup on cost as a dollar amount and as a percentage, retailers often use the following formulas:
  • Dollar markup = Retail Price - Cost of merchandise
  • Percentage markup = Dollar markup / Cost of merchandise
On the other hand, margin on selling is a calculation that expresses dollar markup as a percentage of your retail selling price. The formula for this calculation is:

Margin on selling = Dollar markup / Retail price

Establishing a Markup

When in the process of setting pricing for your products it's important to determine what the typical markup is for the type of merchandise you will be selling. These markups can be found by referring to trade journals, suppliers, retail associations, competitors and management consultants.

To determine what markups are appropriate for your business you must prepare a forecast of annual sales and operating expenses. Then follow these steps carefully:
  1. calculate your cost of goods sold
  2. minus the cost of goods sold from your sales to equal your gross profit
  3. subtract your expenses from the gross profit to obtain your projected net profit to decide whether or not your operation is viable.
If your net profit is not sufficient you will need to take measures such as:
  • reducing expense
  • limiting your personal draws
  • changing price policy
  • vary the product mix
Your business needs to remain flexible and able to adjust the markup you have established as the market place will change from time to time.

Price setting can sometimes be a trial and error process. Careful cash flow forecasting and sales projections can help you minimize the risks.


Services Offered
Strategic Planning
Market Research
Feasibilty Studies
Business Plans
Economic Assessments
Organizational Development
Community Strategies
Customer Satisfaction Studies
Communications
Policy Development
Business Evaluation
   
Contact Info

Cathedral Group

Phone: (204) 482-2115
Fax: (204) 589-3800

admin@cathedral.mb.ca