I was taking a look at my profit margins in the reports and there is something that I do not understand. It shows something that has 100% markup as only 50%. For example, lets say I purchase something for $15 and sell it for $30. That is what I consider a 100% markup but it shows in the reports as only a 50%. Is there something I’m missing? I’m no accountant so maybe there is something that I’m missing. Thanks for any help here!
Hi . in regards to your markup and profit margin report . it is correct . if you mark up something 100% then your G/P (Gross profit / profit margin )will be 50% . and if you mark up something 200% your g/p will be 66.6%
Remember the G/P and the marke up in cash value will be the same eg item cost $1. and you sell it for $2 you G/P and mark up is $1 (2-1=1)
But the G/P and mark up % won’t be the same. e.g
when you do a mark up on an item your are working a % in relation to the cost price .
but when you work out the g/p (profit margin) of the item you are working a % in relation to the selling price (not the cost price)
Let say an item cost you $1 and you mark it up by 50cent and sell it for $1.50.
so to work out the mark up you dived the 50cent profit by the cost price and time by 100 (50c/100c=50x100=50%)
but to work our the g/p % (profit margin), you take the 50 cent profit and you dived it by the selling price (not the cost price ) and times the answer by a 100 (50/150=0.333X100=33.3%
I hope you can understand my explanation in regards to profit margin and mark up %