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The main thing about jewelery in general is the retailers are making margins that no other retailer can even price their products. Imagine Walmart charging $20 for a 2 liter bottle of Coke...now you are in the margins jewelers can make. Now, from the articles I have read about Shopnbc, they are making 40% margins on watches...which is excellent.
For those who would like to know the difference....Mr.H..what my kids call me...will give you a little bit of help from Retail Management 3101....
How to calculate markup percentage
By definition, the markup percentage calculation is cost X markup percentage, and then add that to the original unit cost to arrive at the sales price.
For example, if a product costs $100, the selling price with a 25% markup would be $125:
Gross Profit Margin = Sales Price - Unit Cost = $125 - $100 = $25.
Markup Percentage = Gross Profit Margin/Unit Cost = $25/$100 = 25%.
Sales Price = Cost X Markup Percentage + Cost = $100 X 25% + $100 = $125.
How to calculate gross margin percentage
Gross margin defined is Gross Profit/Sales Price. In this example, the gross margin is $25. This results in a 20% gross margin percentage:
Gross Margin Percentage = Gross Profit/Sales Price = $25/$125 = 20%.
Not quite the “margin percentage” we were looking for. So, how do we determine the selling price given a desired gross margin? It’s all in the inverse…of the gross margin formula, that is. By simply dividing the cost of the product or service by the inverse of the gross margin equation, you will arrive at the selling price needed to achieve the desired gross margin percentage.
For example, if a 25% gross margin percentage is desired, the selling price would be $133.33 and the markup rate would be 33.3%:
Sales Price = Unit Cost/(1 - Gross Margin Percentage) = $100/(1 - .25) = $133.33
Markup Percentage = (Sales Price - Unit Cost)/Unit Cost = ($133.33 - $100)/$100 = 33.3%
Markup vs Gross Margin; Which is Preferable?
Though markup is often used by operations or sales departments to set prices it often overstates the profitability of the transaction. Mathematically markup is always a larger number when compared to the gross margin. Consequently, non-financial individuals think they are obtaining a larger profit than is often the case. By calculating sales prices in gross margin terms they can compare the profitability of that transaction to the economics of the financial statements.
Steps to minimize Markup vs Margin mistakes
Terminology and calculations aside, it is very important to remember that there are more factors that affect the selling price than merely cost. What the market will bear, or what the customer is willing to pay, will ultimately impact the selling price. The key is to find the price that optimizes profits while maintaining a competitive advantage.Below are steps you can take to avoid confusion when working with markup rates vs margin rates:
- use a pricing model or pricing tool to quote sales. Have the tool calculate both the markup percentage and the gross margin percentage
- relate gross margin percentage per sales invoice to income statement
- organize your chart of accounts to compare gross margin rate to sales quotes
- educate your sales force on the differences. By targeting the gross margin percentage vs the markup percentage you can throw an additional 2 - 3 percent profit to the bottom line!
So...now you can do the math for yourself..... With a good calculator, you can take the price you paid for a watch, a margin of 40% and come pretty close to figuring out what the Shop is paying for a watch. Then...check the retail price for the same watch at a jeweler...and you will pass out when you see the what the profit margin is...a whole lot.
How do I know...my sister-in-law was a manager at a local chain store jeweler at a mall in El Paso...and she told me what her margins were. Plus...she got things at cost plus 5%...and she got her & my brothers wedding rings from her store. I saw the retail price of her rings....verse what she paid for them....the difference was unreal. Before she left...she got me two really expensive Seiko's for a song!!!
icDressy 40-42mm
