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The Mysteries Behind Initial Markup:Pricing Strategies To Improve Your
Paul Erickson, RMSA
Bottom Line
initial markup (IMU)
difference between markup & margin
markup marginp• initial markup and
maintained markup
g• initial margin and
gross marginp• retail aspect• from buyer’s perspective
g g• accounting aspect• from business owner’s
iperspective
retail method of calculation
retail method of calculation
original selling price - cost / original selling priceoriginal selling price
• Example: $100 - $40 / $100 = 60%
Zizzybaloobah/Fickr
“…I multiple the cost by
“…that’s what I always price the cost by
2.2…”I always price
it at…”it at…
“ I double the …I double the cost and then add
a $1 or $2…”
three key elements
three key elements
kd operating desiredmarkdowns operating expenses
desired net profit
three key elements
kd operating desiredmarkdowns operating expenses
desired net profit
three key elements
kd operating desiredmarkdowns operating expenses
desired net profit
IMU formula
IMU = (markdown % +(markdown %
operating expense % + d i d t fit %) /desired net profit %) / 100% + markdown%
markdowns = operating desired markdowns =20%
p gexpenses =
40%net profit =
6%
.06 + .40 + .201.0 + .20
55= .55
l l $1 000 000annual sales $1,000,000
IMU 52.5% 55%
MDS 20% 20%
MMU 43% $430K 46% $460KMMU 43% = $430K 46% = $460K
EXP 40% = $400K 40% = $400K
NET 3% = $ 30K 6% = $ 60K
i i f fipricing for profit
52.5% 55%$9.00 cost $9.00 cost
$19.00 retail $19.99 retail$19.00 retail $19.99 retail
h l f i ipsychology of pricing
titi i icompetitive pricing
competitive pricing
multiple pricing
discountpricing
loss leaderspricing pricing leaders
know yourcompetition
customerservicep
competitive pricing
multiple pricing
discountpricing
loss leaderspricing pricing leaders
know yourcompetition
customerservicep
competitive pricing
multiple pricing
discountpricing
loss leaderspricing pricing leaders
know yourcompetition
customerservicep
competitive pricing
multiple pricing
discountpricing
loss leaderspricing pricing leaders
know yourcompetition
customerservicep
competitive pricing
multiple pricing
discountpricing
loss leaderspricing pricing leaders
know yourcompetition
customerservicep
t i l fsteering clear of t b i icost-base pricing
steering clear of cost-base pricing
decide ondecide on price before
knowingknowingcost
determinedetermine price when
iti dwriting order
steering clear of cost-base pricing
decide ondecide on price before
knowingknowingcost
determinedetermine price when
iti dwriting order
steering clear of cost-base pricing
decide ondecide on price before
knowingthen maked i i=
knowingcost
decisionto buy
=determinedetermine price when
iti dwriting order
i iti l k iinitial markup review
initial markup review
i ht determine t l frightproduct
determine each product
category
steer clear of cost-base
price? categoryseparately pricing
use key expensespsychologicalpricing when
key expensesgo up, so
should IMUp gpossible should IMU
initial markup review
determine t l frightproduct
determine each product
category
steer clear of cost-base
price? categoryseparately pricing
use key expensespsychologicalpricing when
key expensesgo up, so
should IMUp gpossible should IMU
initial markup review
determine t l frightproduct
determine each product
category
steer clear of cost-base
price? categoryseparately pricing
use key expensespsychologicalpricing when
key expensesgo up, so
should IMUp gpossible should IMU
initial markup review
determine t l frightproduct
determine each product
category
steer clear of cost-base
price? categoryseparately pricing
use key expensespsychological
pricing when
key expensesgo up, so
should IMUp gpossible
should IMU
initial markup review
determine t l frightproduct
determine each product
category
steer clear of cost-base
price? categoryseparately pricing
use key expensespsychologicalpricing when
key expensesgo up, so
should IMUp gpossible should IMU
outdoorindustry.org/OU
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Thank You
outdoorindustry.org/OU
Thank You.
Paul EricksonRMSA Retail SolutionsRMSA Retail Solutionswww.rmsa.comperickson@rmsa [email protected]
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