How to Calculate Retail Percentages

Calculating retail percentages is key to optimizing profit

Pricing strategies play a critical role in the success of a retail business. Retail percentages need to accomplish business objectives and ensure profit, and at the same time provide value and create loyalty. Once calculated, retail percentages integrate with merchandising programs in a continual process of monitoring and adjusting to business conditions. Strong competition, narrow profit margins, rising costs and comparison-shopping require retailers to pay close attention to pricing and calculate retail percentages accurately.

Things You'll Need

• Calculator
• Net sales
• Cost of goods sold
• Item wholesale cost

Instructions

Calculate Gross Profit Margin Percentage

1. Evaluate the equation for determining gross margin and collect accounting information. Gross margin displays as a percentage, achieved by dividing net sales revenue (gross sales revenue -- cost of goods sold) by total sales revenue.

2. Insert your numbers into the equation. If your net sales for the last quarter are $100,000, and cost of goods sold is $40,000, the equation will display as (100,000 -- 40,000)/100,000.

3. Perform the calculation and convert the result to a percentage by multiplying by 100. Using the above example, you arrive at a .60 or 60 percent gross profit percentage.

Calculate Markup Percentage

1. Evaluate the equation using a known gross margin. If you already know the gross margin you must realize, base markup percentage on that margin. The general equations using the margin method to arrive at a markup percentage is wholesale cost/(1-margin)/100 to determine the dollar amount of the markup, and retail price -- wholesale cost/wholesale cost to determine the markup percentage.

2. Insert numbers and complete the first equation. If you need to realize a 60 percent gross margin and the wholesale cost of the item is $4.00, the equation will display as 4.00/(1-.60)/100, or 4.00/(.40/100). Perform the calculation and add markup to the item to arrive at a retail sales price. Markup for this item is $10 so the retail price is $14.

3. Insert numbers and determine markup percentage. Using the above example, retail price is $14, wholesale cost is $4, so the equation reads as 14-4/4 = 2.5, or 250 percent.

Calculating Discount Percentage

1. Evaluate the equation for determining a discount percentage. This equation displays as discount/retail price times 100 percent.

2. Insert numbers into the equation. If the discount amount is $3.00 and the retail price of the item is $14.00, the equation reads as (3/14) x 100.

3. Complete the calculation to arrive at a discount percentage. Using the above example, you arrive at 21 percent.

Tips & Warnings

• Companies calculate gross margin most often to analyze total revenue numbers. Gross margin is the percentage of each dollar a business retains from a sale.

• Markup and margin are not the same. This can be confusing as they both deal with percentages. Using margin to determine retail price will result in higher profits and is a better idea. For example, if your business requires a 25 percent profit margin and you use this number to determine markup, you will fall short of profit goals, as a 25 percent markup rate produces a gross margin percentage of only 20 percent.

• You can also determine a sale price if you already know the discount percentage you want to use. In that case, the equation is (discount percentage/100) times the original sales price. If the discount is 15 percent, and the price is $18, the equation reads as (.15/100) times 18 to equal a discount of $2.70. The sale price of the item would be $15.30.

References

• Building Trade: Markup or Margin
• Teachers Choice: Calculate Percentages
• Investopedia: Gross Margin

Resources

• Revtronics: Retail Pricing Strategy-Insights and Opportunities