Page 65 - Spring Into Markets

P. 65

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In this Guide we are going to focus on mark up.
Example: If a trader buys a necklace for £5 (the wholesale price) and sells it for £12 (the retail price), the Mark Up is £7 or 140%. (£7 / £5 x 100)
From this £7, a trader will need to be able to pay all the costs associated with having a stall and aim to have some profit left over!
If a trader is paying VAT at 17.5%, the mark up, in this example, will be less than £7.
£12 (sales) – £1.79 (VAT) – £5 (wholesale price) gives a mark up of £5.21 or 104% (£5.21 / £5 x 100), but the traders costs will still remain the same!
Note: with VAT at 17.5%, it is calculated as (retail sales x 7÷47)
FOR CURRENT VAT RATES
Scenario 1
A trader buys 1,000 sweets at £1 each (wholesale price of £1,000) and sells all of them for £1.10 each (total sales of £1,100),
i.e. a mark up of 10p each sweet or 10%.
Therefore the trader makes a ‘gross profit’ of £100 (£1,100 – £1,000).
If transport costs are £50, the pitch costs £75 and help on the stall costs £75, then total costs are £200.
Gross profit – costs = net profit i.e. £100 – £200 = (£100), i.e. a loss of £100
Therefore in this scenario, the mark up is not high enough to cover costs and make a profit – therefore this is a FAILURE.
If VAT is added in to the equation the loss is actually £264! £1,100 – £164 – £1,000 – £200 = (£264)
(retail sales – VAT – wholesale price – costs)
Guide 9 Is the Price Right? 65
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