A Business Encyclopedia

Mark-up Pricing

Definition: The Mark-up pricing is the method of adding a certain percentage of a markup to the cost of the product to determine the selling price.

In order to apply the mark-up pricing, firstly, the companies must determine the cost of a product and decide on the amount of profit to be earned over and above it and then add that much markup in the cost.

mark-up pricing

Let’s understand the mark-up pricing through an example.

Suppose, there is a laptop manufacturer who has the following cost and sales expectations:

Variable cost per unit: Rs 30
Fixed Cost: 5,00,000
Expected Unit Sales: Rs 50,000

The manufacturer’s unit cost is given by:

Unit Cost = Variable cost + Fixed cost/unit sales

Thus, Unit cost = 30 + 500000/50000 = Rs 40

Once the cost is determined, the manufacturer decided to add a 20% markup on sales. The mark-up price is given by:

Mark-up price = unit Cost/1-desired return on sales

Thus, mark-up price = 40/ 1-0.2 = 50

Hence, the manufacturer must charge Rs 50 to earn a profit of Rs 10.

The benefit of using the mark-up pricing is that it is very simple to calculate and understand. Also the same type of pricing used by all the firms in the industry, the price tends to be similar and hence, the price competition reduces in the market.

But however, it also suffers from limitations, while computing the mark-up price the actual demand for the product is ignored. Also, the perceived value of the customer and the amount of competition prevailing in the market is overlooked.

Leave a Reply

Your email address will not be published. Required fields are marked *


Related pages

what are decision variables in linear programminglikertscharacteristics of a sole traderporters five forceformula of profitability indexmichael porter five forcesprovident fund definationentrepreneur hindi meaningpromotion mix elementsdelegative definitionwhat is monopolistic competitionexplain critical path methodtypes of collective bargaining pdfcapital budgeting risk analysisequity theory of relationshipscrr in bankingthe employees provident fund act 1952neft minimum and maximum limitfactors affecting consumer buying behaviorjit meansmeaning of refreshergraph of diminishing marginal utilitycyclical unemployment definitiondefine substitutes in economicsaging of receivables scheduledefine environmental auditemployees provident fund websiteformula for debtors turnover ratiochit funds meaningwhat does autocratic leader meanmonetising debtporter's five forcepsychological barriers to communication examplesretrenchment in strategic managementwhat is trait theory of personalityfixed asset turnover ratio formulaabc method of inventorywhat is npcidefine neoclassicalproportionate stratified random sampling examplewhat is correlational analysistotal utility meaningoligopoly in economicsprofit theories in managerial economicsefficiency hindi meaningsole trader characteristicsjob enrichment in hrminformal communication in organizationobjectives of induction programmefeatures of duopolysubordinates meaning in hindisegmentation marketing definitionbases for segmenting business marketscorrelational approach definitiondefine bureaucracy sociologyjudgement samplingwhat are the 14 principles of henri fayolweber's model of bureaucracymarkup pricing definitionautomation disadvantagesvms meaningcontrollable and uncontrollable factorsdefinition of flankinggreenshoenon collusive oligopoly modelswhat is expectancy theory of motivationherzberg theorydefinition of providentdefine flankdefinition of speculatingcross elasticity of complementary goodsdelegation meaning in hindihedge funds explainedstick and carrot policymeaning of capital budgetingadvantages of vestibule trainingwhat does golden parachute meandefinition investitureemployer meaning in tagalog