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%).
- 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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