How to Calculate Retail Markup

How to Calculate Retail Markup

When selling merchandise in your retail operation, you want to make sure that you set a price for your products that covers your costs and expenses as well as delivers a healthy profit. Using a simple retail calculation will help you determine just how much to mark up merchandise.

Definition of Retail Markup

The definition of a retail markup, also known as a mark-on, is a certain percentage that is added to the original cost of a product – what you paid to get that product from the manufacturer or wholesale – to arrive at the price that a retailer will then sell that item to consumers. This difference is what will cover your overhead costs as well as hopefully provide you with the profitability you want to achieve.

One Method for Calculating Markup

One method is simply to consider what you think a fair price would be. This is the subjective portion of the calculation and helps you arrive at a general idea of what you would like the retail price to be on a particular product. Once you have that estimate, you will need to start doing some real calculations, starting with all your costs. These costs might include labor, marketing and advertising, packaging and materials, and rent. Divide the total amount of your expenses into the total number of pieces of a particular product that you're marking up, add that to your wholesale cost per item and you get your break-even price. Anything above that is profit.

Another Way to Calculate Markup

If you plan to calculate markup based on a target profit percentage, multiply your break-even price times that percentage plus 100% to get your target item price. Subtract the break-even price to give you the mark-up dollar amount. In the case of an item whose break-even point is $10 with a target profit of 25%, multiply $10 x 1.25, which gives you a target price of $12.50, and a dollar markup amount of two dollars and fifty cents. One ballpark markup method retailers sometimes use is to simply double their costs of goods and set the initial sale price there, then calculate expenses and final profit on the back end.

Keep Projections Accurate

An important thing to remember, however, is to create as accurate a set of projections as possible in order to hit the target on your markup. You don't want to be constantly changing prices as this will confuse and frustrate your customers. Working this way, if you buy a product wholesale for $5 and sell it for $10, your gross markup percentage is 100 percent and gross markup dollar amount is $5. You would then need to figure your total expenses and divide by the number of products you're selling to see how much of markup will go to covering your costs and how much you have left to claim as profit.

Run Figures Multiple Times to Calculate Markup

You may need to run the figures a number of times on each product to get to a markup and price you are comfortable with. Each retail operation will have a markup percentage, and method of calculation that works best for them. Many consumers may already know that furniture stores and restaurants often have a much higher markup than, say, a grocer or a clothing store. You can research your industry and the competition to get a sense of what is common practice on a percentage scale, which may also help you pick your price point.

Source: About.com

How Events Get Customers In Your Door

Sarah's bookstore hummed as customers milled about, chatting with each other. Nearby store owners complained about the economy, and competition from big box stores. They closed at 5:00 pm on Wednesday and Thursday nights, because of slow traffic. But Sarah's store was open late, filled with customers those two nights of the week. She seemed to have a secret formula that kept her store thriving.

Events are the secret formula
Events give shoppers a reason to visit. If you don't give them a reason, shoppers may intend to visit, but put it off. Or they may never have been to your store before. An event gives them a reason to check it out for the first time.

What's Sarah's secret?
Sarah knows that events are the key to getting customers in the door, predictably and reliably. She knows that two nights a week in-store events draw a store full of customers inside. Customers that are happy to tell other people about their experience.

Why is Sarah's store busier than the others?
Every week Sarah hosts a writer's group and a book club. Each event draws 15-20 people. Most of those customers are regulars, but occasionally they bring new friends with them.

You can learn to use Sarah's secret in your store.

There are three steps to creating events that get customers in the door:
1) Decide on a goal for the event
2) Create the event
3) Invite guests

1) Decide on a goal for the event
What do you want to accomplish with the event? Events are about customer relationships. Set goals that relate to building those relationships, and getting shoppers into the store.

Your goal might be to attract new customers to the store. It could be to get customers to sign up for a series of workshops. Or it might be to build relationships with your VIP or best customers.

Set goals that are specific. For example:

• If your slowest day of the week is Monday, plan to bring in 5 new customers every Monday
• If the store is dead in the middle of the day, create events to bring in shoppers midday
• Increase visits by regular customers from occasional to weekly

Once you know what you want to achieve with the event, the next step is to plan the event itself.

2) Create the event
The events you run should relate to your customer needs. Create an event that helps your customer learn or do something. The event you choose will depend on the type of product you sell. Ideas could be book club meetings for a book store, running club for an athletic shoe store, or style and fit workshops for a women's apparel store. Events can be free or paid. They can include clubs, classes and workshops.

Whatever event you choose needs to add value for your customer. To help you come up with event ideas, ask yourself:

• What kind of questions do customers ask about using your products?
• What do they need help with?
• What kinds of problems do they have that you can solve?

By helping your customers learn, they come to see you as an expert to turn to for information and advice. That is the value that will keep customers coming back to you, instead of the competition.

Now that you've figured out what kind of event to host, let's move on to the next step.

3) Invite guests
Don't make the mistake of trying to make the event a big, mass media event. Or printing up hundreds of cheap flyers.  Store events are about building relationships, so the invitations need to reflect that. Make it personal, like you would if you invited them to your home. Customers want to feel special like your friends do. Invite guests when they are in your store. Hand them invitations. Email invitations to customers you haven't seen in a while. Put an invitation on your blog. Link it to all your social media; Facebook page, Twitter, LinkedIn, etc.

Consider making the event exclusive to make it more desirable. Sarah's writers group was exclusive. Only writers allowed. You can make events even more exclusive by asking for RSVPs, or charging a fee. Make sure the RSVP or fee information is clearly communicated in the invitation.

Once you've gone through these three steps, you're ready to host your event.

What if no one buys anything?
This is a fear for many retailers. Hosting an event takes time, planning, and money. With all that investment, what if there are no sales? The truth is, you may not sell anything. If the main goal of your event is to get new customers, you probably will sell very little. The event just gets the shoppers in the door. It's like a first date. The shopper is just getting to know you. It's a chance for you to start building a relationship.

In Sarah's case, she often had nights that went by without sales at the event, but she wasn't worried. These people were some of her best customers. They were book lovers. By visiting her store every week, they would see what was new on the shelves. They would place special orders. They'd come in throughout the week to pick up something they'd seen during the book club meeting. And they told their friends about the bookstore.

Sarah was happy to invest two nights a week hosting events. She knew they generated more business than an expensive advertising campaign would. And other than her time, the costs were minimal.

Summary
To create Sarah's secret to get customers in the door, use these three steps:

1) Decide on a goal for the event
Choose a goal that is related to building customer relationships.

2) Create the event
Plan events that meets customer needs.

3) Invite guests
Create invitations that are personal and build relationships.

Source 

Home Tours

A customer sent this article to us to pass on to our customers. Something they are going to try in their small town too.

Julie Lancia and Barb Mueller, the co-owners of JB Winterberry in Wheaton, Illinois, explained how participating in a local Home Tour helps them promote their shop. Follow their tips to make this type of event work for you.

1. Show the community that your shop is alive and well by starting or participating in a local home tour. If your community has a home tour or another similar event, get involved! If your area doesn’t have one, start one! For the past five years, JB Winterberry has participated in the Center for History’s House Walk. For this event, select stores are asked to decorate one of five homes with fall decor. These houses are then opened to the public for a house walk. When Barb and Julie decorate the home, they include JB Winterberry touches in every room. Visitors see the creative displays and want to replicate them in their own homes, often going to Barb and Julie’s shop to find the exact same products. 

2. Partner with another local business for products or services that you don’t provide. If you’d like to participate in a local home tour, but you don’t offer all of the products or services necessary to decorate an entire house, partner with another local business that can fill in the gaps. JB Winterberry doesn’t sell fresh flowers, so they asked a local florist to combine talents with them. Barb and Julie embellished the dining room table with a range of JB Winterberry products, and then on the morning of the walk, the florist delivered a fresh arrangement for the center of the table.

3. Offer to sell tickets for the event in your shop. When participating in any fund-raising event that requires tickets, offer to sell the tickets in your store. JB Winterberry sells tickets for the history center house walk for three weeks prior to the event. As a thank you from the history center, the shop’s advertising is free in a brochure that is distributed throughout the walk. Even if you don’t receive free advertising for selling tickets, it will still bring a lot of potential customers into your store.

4. Find out if your store name will be included in all promotional literature for the event. Most fund-raising events include participating businesses’ names in promotional literature, such as brochures, flyers, websites, etc., but make sure this is the case with your event. Participating in an event such as a home tour takes a lot of time and extra work, so you want to get your name out as much as possible.

5. Ask if you can include business cards or signs promoting your store in your decorated home. If you’re decorating a home with merchandise from your shop, ask if you can include cards or signage telling attendees where the products can be purchased. Just be sure to keep the cards or signs small so they aren’t distracting. For their house walk, Barb and Julie tucked small cards with JB Winterberry’s information in their home’s displays. This helped draw many attendees back to their store after the event.

6. Make sure your local media are covering the event. Whether it’s a local television station, newspaper or radio station, make sure local media outlets know about the event. Because of the community nature of a house walk, JB Winterberry usually receives local newspaper coverage, and two years ago, a local radio station held a live remote in front of the shop’s decorated home.

7. Tell staff members to talk up event. It sounds simple, but asking your staff members to talk about the home tour is an easy way to promote both the event and your store. Get your staff excited about the tour and ask them to tell customers in the store as well as their own friends and family.

8. Ask the homeowners if they’d like to purchase any of the merchandise at a discount after the event. With so much time put into decorating a home, it’s definitely worth asking the homeowners if they’re interested in purchasing any of the items after the event. Last year, the owners of JB Winterberry’s home purchased over half of what was displayed. By offering a discount on the large purchase, Barb and Julie didn’t have to pack everything up to bring back to the shop.

Times are tough for small businesses and your customers. Participating in local events is a great way to put yourself out in the community, and the community will in turn support you.