# What is an optimal sales markup

## Understand and calculate the trade margin - this is how you calculate your prices

The trading margin, also known as margin, price range or gross profit, is the premium between the cost price and the sales price.

Accordingly, the margin only applies to companies that do not produce their goods themselves, but buy them and sell them again.

### How do you calculate it?

The following formula is used for the calculation:

Trading margin = (net selling price - cost price) / net selling price

### Trading range example

The calculation surcharge example is taken up at this point:

An electronics retailer buys televisions of a certain brand at one **Cost price** from € 200 per piece. He calculates with you **Calculation surcharge** of 40%.

1. | Cost price | 200 € | |

+ | 2. | Calculation surcharge (40%) | 80 € |

= | 3. | Net selling price | 280 € |

#### Calculate trading margin

The **Trading margin** amounts to: (280 € - 200 €) / 280 € = 80 € / 280 € = 0.2857 = 28.57%.

### What do we understand by trade markup and trade markup?

The trading range is divided into a trade premium and a trade discount. The mark-up range is the percentage mark-up on the purchase price, while the mark-down range describes the percentage markdown.

The trade premium is also called the calculation premium. It is used to determine the sales price from known purchase prices.

Conversely, you need the trade discount in order to get to the purchase price or purchase price if the sales price is known. The discount is primarily used to find out what percentage the trading margin makes up from the sales price.

### Formula for calculating the trading premium and the trading discount

The trading surcharge (gross surcharge, gross earnings surcharge) indicates how many percent the (= difference between sales price and purchase price is of the purchase price.

### example

The subscription price is € 200, the sales price is € 280, then:

Trading premium = trading margin / subscription price

= (280 – 200) / 200 = 40%

In contrast to this, the trade discount says what percentage the trade margin makes up from the purchase price or cost price. The trade markup is used to determine the sales price if the cost price is known. Another name for this is the calculation surcharge. (See also trade calculation).

Here is a margin calculator that can save you a bit of the hassle.

### What do you need the trading margin for?

Well, I've thrown technical terms around, but I haven't really said what the whole thing is for now. But since you now know all the terminology, it will be much easier for you to understand the rest.

#### So what does it bring your company?

The trading margin ...

- ... makes statements about the profit and costs of your company, i.e. whether you can cover your costs and also make a profit
- ... gives your trade marketing useful tips regarding the best price calculation and the optimal purchase of goods
- ... shows you whether your company is profitable (profitability of your company)

You have to keep in mind that selling your goods must cover all costs incurred before you can even make a profit. In addition to the fixed costs, this also includes your entrepreneur's wages, i.e. the money you need to earn a living or want to take out for it.

**Common examples of your company's costs are**:

- Rent of sales rooms
- Additional costs for the sales rooms, such as electricity, water, etc.
- Personnel costs
- Advertising and marketing costs
- Entrepreneur wages

### Different forms of trading lead to different application of the trading margin

The trading margin is never fully exhausted, otherwise you would only cover costs and never make a profit.

It is used in corporate design from grocery stores to stock exchanges.

But the type of trade largely determines the size of the trade margin.

**As an an example**

In a successful supermarket you can keep the trade margin to a minimum, as you will still make a profit due to the high sales of the products.

However, if you have a specialized business that doesn't sell that many goods a day, you need to set your trading margin significantly higher to make a profit. Always remember that you have a lot of running costs that need to be covered first!

So when you start out as an entrepreneur, you have to think carefully about how much your product is worth in itself and how much your customers are willing to pay for it. That requires a careful calculation. Therefore, mixed calculation is often used.

### The differentiated calculation / mixed calculation

In order to achieve the optimal pricing for your company, many companies work with what is known as mixed calculation. Here you put together your entire range of goods with an average trade margin and goods with above and below average trade margins.

Now that you've got an overview of the costs of your business, the next thing to think about is yours **Sales planning** looks like. This means estimating how many products you will sell and how many per year (or in a certain period of time). So how many different products do you want to offer and how many of each product do you think will be sold?

So in summary one understands by the **Sales volume** the planned sales volume. If you do your sales planning carefully, you will prevent too many products from remaining unsold or from being sold out too quickly.

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