Measuring Marketing

Chapter 41 Mark-Up Pricing

Measurement Need

Determining the right percentage to add to costs, to recover costs, and make a small profit.

Solutioni

This pricing method adds a slight increase, or “mark-up,” to the product’s (or service’s) cost. It is often used in retail businesses. Companies using it would calculate their base costs for a project or product, then add a percentage mark-up to reflect the premium they believe their product or service represents. This is represented by the following formula:

$MUP=\frac{UC}{\left(1-ROSe\right)}$

Where

MUP = mark-up price

UC = unit cost

ROSe = expected return on sales

Unit cost must be determined to calculate the mark-up pricing formula. To calculate unit cost, use this formula:

$UC=\frac{VC+FC}{US}$

Where ...