{"id":2162,"date":"2018-03-27T23:25:15","date_gmt":"2018-03-27T23:25:15","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-retailmanagement\/?post_type=chapter&#038;p=2162"},"modified":"2024-04-25T03:03:44","modified_gmt":"2024-04-25T03:03:44","slug":"cost-oriented-pricing-equations","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wm-retailmanagement\/chapter\/cost-oriented-pricing-equations\/","title":{"raw":"Cost-Oriented Pricing Equations","rendered":"Cost-Oriented Pricing Equations"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Objectives<\/h3>\r\n<ul>\r\n \t<li>Using cost-oriented pricing equations, calculate the retail price, the cost, and the markup percentage of a product<\/li>\r\n<\/ul>\r\n<\/div>\r\nWe touched on this topic briefly in an earlier section when we calculated the markup of an item costing $4.00. We also discussed the concept of keystone pricing, which is simply a straight 50% markup on all items regardless of cost. We can easily calculate the different components of retail pricing using known variables.\r\n\r\nTo <strong>calculate the retail price based on cost<\/strong> requires knowing your markup objective. Markup, again, is the difference between what the retailer paid to a vendor for the product and the price at which they sell it to their customers. So for a target 53% markup on an item costing $9.00, we will need two steps. First, we need the \u201ccost complement\u201d of the markup which is calculated as:\r\n<p style=\"text-align: center;\">Cost Complement = 100% \u2212 Markup<\/p>\r\n<p style=\"text-align: center;\">Cost Complement = 100% - 53%<\/p>\r\n<p style=\"text-align: center;\">Cost Complement = 47% or .47<\/p>\r\nThen we simply divide the cost of the product by the cost complement to arrive at the retail price.\r\n<p style=\"text-align: center;\">Retail Price = $9.00 \/ .47<\/p>\r\n<p style=\"text-align: center;\">Retail Price = $19.15<\/p>\r\n<strong>To calculate markup percentage based on cost and retail price<\/strong>, we use the formula discussed earlier:\r\n<p style=\"text-align: center;\">*Retail price minus cost price divided by retail price*<\/p>\r\nSo if your item cost is $4.00 and you sell it for $10.00, you would calculate markup as:\r\n<p style=\"text-align: center;\">($10.00\u00a0 $4.00 = $6.00) \/$10.00 = .6 or 60%<\/p>\r\nFinally, <strong>to calculate cost based on retail price and markup <\/strong>with a retail price of $25.00 and a markup of 55%, we would use this formula:\r\n<p style=\"text-align: center;\">Cost = Retail price * Cost Complement<\/p>\r\n<p style=\"text-align: center;\">Cost = $25.00 * .45<\/p>\r\n<p style=\"text-align: center;\">Cost = $11.25<\/p>\r\n\r\n<div class=\"textbox tryit\">\r\n<h3>Practice Questions<\/h3>\r\nhttps:\/\/assess.lumenlearning.com\/practice\/488697d6-bc7e-4e0a-a963-fbfe99afb057\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Objectives<\/h3>\n<ul>\n<li>Using cost-oriented pricing equations, calculate the retail price, the cost, and the markup percentage of a product<\/li>\n<\/ul>\n<\/div>\n<p>We touched on this topic briefly in an earlier section when we calculated the markup of an item costing $4.00. We also discussed the concept of keystone pricing, which is simply a straight 50% markup on all items regardless of cost. We can easily calculate the different components of retail pricing using known variables.<\/p>\n<p>To <strong>calculate the retail price based on cost<\/strong> requires knowing your markup objective. Markup, again, is the difference between what the retailer paid to a vendor for the product and the price at which they sell it to their customers. So for a target 53% markup on an item costing $9.00, we will need two steps. First, we need the \u201ccost complement\u201d of the markup which is calculated as:<\/p>\n<p style=\"text-align: center;\">Cost Complement = 100% \u2212 Markup<\/p>\n<p style=\"text-align: center;\">Cost Complement = 100% &#8211; 53%<\/p>\n<p style=\"text-align: center;\">Cost Complement = 47% or .47<\/p>\n<p>Then we simply divide the cost of the product by the cost complement to arrive at the retail price.<\/p>\n<p style=\"text-align: center;\">Retail Price = $9.00 \/ .47<\/p>\n<p style=\"text-align: center;\">Retail Price = $19.15<\/p>\n<p><strong>To calculate markup percentage based on cost and retail price<\/strong>, we use the formula discussed earlier:<\/p>\n<p style=\"text-align: center;\">*Retail price minus cost price divided by retail price*<\/p>\n<p>So if your item cost is $4.00 and you sell it for $10.00, you would calculate markup as:<\/p>\n<p style=\"text-align: center;\">($10.00\u00a0 $4.00 = $6.00) \/$10.00 = .6 or 60%<\/p>\n<p>Finally, <strong>to calculate cost based on retail price and markup <\/strong>with a retail price of $25.00 and a markup of 55%, we would use this formula:<\/p>\n<p style=\"text-align: center;\">Cost = Retail price * Cost Complement<\/p>\n<p style=\"text-align: center;\">Cost = $25.00 * .45<\/p>\n<p style=\"text-align: center;\">Cost = $11.25<\/p>\n<div class=\"textbox tryit\">\n<h3>Practice Questions<\/h3>\n<p>\t<iframe id=\"assessment_practice_488697d6-bc7e-4e0a-a963-fbfe99afb057\" class=\"resizable\" src=\"https:\/\/assess.lumenlearning.com\/practice\/488697d6-bc7e-4e0a-a963-fbfe99afb057?iframe_resize_id=assessment_practice_id_488697d6-bc7e-4e0a-a963-fbfe99afb057\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:300px;\"><br \/>\n\t<\/iframe>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-2162\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Cost-Oriented Pricing Equations. <strong>Authored by<\/strong>: Bob Danielson. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":62559,"menu_order":12,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Cost-Oriented Pricing Equations\",\"author\":\"Bob Danielson\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"}]","CANDELA_OUTCOMES_GUID":"a6c30e2f-a958-4f38-b851-ad5d4813aa32, fb23d50e-58a1-41d3-af8f-9a0b0b0aadfa","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-2162","chapter","type-chapter","status-publish","hentry"],"part":2139,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/wm-retailmanagement\/wp-json\/pressbooks\/v2\/chapters\/2162","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/wm-retailmanagement\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/wm-retailmanagement\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-retailmanagement\/wp-json\/wp\/v2\/users\/62559"}],"version-history":[{"count":10,"href":"https:\/\/courses.lumenlearning.com\/wm-retailmanagement\/wp-json\/pressbooks\/v2\/chapters\/2162\/revisions"}],"predecessor-version":[{"id":6512,"href":"https:\/\/courses.lumenlearning.com\/wm-retailmanagement\/wp-json\/pressbooks\/v2\/chapters\/2162\/revisions\/6512"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/wm-retailmanagement\/wp-json\/pressbooks\/v2\/parts\/2139"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/wm-retailmanagement\/wp-json\/pressbooks\/v2\/chapters\/2162\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/wm-retailmanagement\/wp-json\/wp\/v2\/media?parent=2162"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-retailmanagement\/wp-json\/pressbooks\/v2\/chapter-type?post=2162"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-retailmanagement\/wp-json\/wp\/v2\/contributor?post=2162"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-retailmanagement\/wp-json\/wp\/v2\/license?post=2162"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}