Mark-up pricing is also known as cost pricing. It is a common and simple way of reaching a sale price. You simply take all your costs, choose a mark-up percentage and do the maths.
cost + (cost X mark-up %) = sale price
For example, your total costs are R100 and you wish to you use a mark-up of 75%, then your sale price will be:
R100 + (100 X 0.75) = R175
Things to consider:
Production costs – this is mainly your raw materials e.g. if yours is a sandwich- making business, then the bread, butter, cheese & tomato are the raw materials needed to make a basic sandwich. It follows then that you will need to calculate the actual cost of every type of sandwich you offer, in order to mark-up accurately. The humble cheese & tomato on brown bread may cost R8 in terms of raw materials, but a chicken mayo on rye, with all the trimmings may cost R12.
Overhead costs – the cost to you of actually running the business. They may include the following items: rent, electricity, water, wages, marketing, professional fees (accountant fees say, or a permit), inbound shipping of raw materials, packaging, shop décor, website maintenance, etc. Once you have added up all these costs you will need to estimate how many sandwiches you will sell in a month and then allocate the costs to the sandwiches.
For example; your overhead costs come to R3,500 in total and you estimate you will sell 50 sandwiches per day six days per week, so you need to divide R3,500 by 2,024 sandwiches. Hence you need to add R1.73 to the cost of each sandwich. Your cheese & tomato now has a total cost of R9.73 and your chicken mayo costs R13.73.
If you add a 75% mark-up, the cheese & tomato will sell for R17 and the chicken mayo for R24.
You may need to adjust your calculations once you have a clearer idea how many sandwiches you are selling, or if your costs vary.
Price too high – no one will buy
Price too low – you may make no profit
A quick search on the internet will help you to find the mark-up percentage commonly used in your industry. It is also important to keep abreast of what your competition are charging.