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# GP% vs Markup % Explained

Mar 27, 2021

These metrics are not the same. The markup % will always be a larger percentage than the GP%. A markup % is applied to the cost of a product to calculate an item’s sales price ie. cost multiplied by 1 + markup %. GP% is calculated by dividing the GP\$ associated with an item (sales \$ – cost \$) by the sales price.

One metric is a multiplication (markup) and the other is a division (GP%).

When pricing goods a markup % is applied to an item’s cost to produce a selling price that produces a target GP%.

How do you calculate the markup % required to produce a target GP%?

The formula is 1/(1-required GP%).

1. if require a GP% of 60% = (1/(1-0.6) = 1/0.4 = 250% or 2.5x. This factor is applied to the items cost. If an item costs \$12.00, then the selling price to produce a GP% of 60% is \$12.00×2.5 = \$30.00. Check: GP\$ = \$30.00-12.00=\$18.00. GP% = \$18/\$30 = 60%.

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