If I want a gross margin of 25%, what percent should I mark up my product?

### Author Topic: If I want a gross margin of 25%, what percent should I mark up my product?  (Read 172 times)

#### Repon

• Full Member
• Posts: 178
• Test
##### If I want a gross margin of 25%, what percent should I mark up my product?
« on: July 09, 2015, 12:58:22 PM »
If I want a gross margin of 25%, what percent should I mark up my product?

To achieve a gross margin or gross profit percentage of 25%, you will need to mark up your product's cost by 33.333%. The following illustrates how this is calculated.

Assume a product has a cost of \$75 and a selling price of \$100. Since the gross profit is defined as selling price minus the cost of goods sold, this product will have a gross profit of \$25 (\$100 minus \$75). The gross margin or gross profit percentage is 25% (gross profit of \$25 divided by selling price of \$100). The mark up of \$25 on the cost of \$75 equals 33.333% (\$25 divided by \$75).

Let's prove this with one more example. Assume you have a product that you purchased for \$9. If you mark it up by 33.333%, you will have a markup of \$3 and the product will sell for \$12. The income statement will show a sale of \$12 minus its cost of \$9 for a gross profit of \$3. The gross profit of \$3 divided by the selling price of \$12 equals a 25% gross margin or gross profit percentage or gross profit ratio.
Senior Lecturer in Accounting