Page 66 - Spring Into Markets

Scenario 2
A trader buys 1,000 sweets at £1 each (wholesale price of £1,000) and sells all of them for £1.50 each (retail price), i.e. a mark up of 50p or 50%.
Therefore the trader makes a ‘gross profit’ of £500 (£1,500 – £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. £500 – £200 = £300, i.e. a profit of £300.
Therefore in this scenario, the mark up is sufficient enough to cover costs and make a profit.
If VAT is added in to the equation the profit is actually £77! (£1,500 – £223 – £1,000 – £200 = £77.
A trader will need to research the industry of their particular product to find out a typical mark up which can therefore be a start point in negotiations with whole‐ salers, manufacturers, distributors and suppliers, etc.
Whilst mark ups vary depending on the different types of products sold, most High Street chains use a mark up of 100% (i.e. retail price is double the wholesale price) as a start point for:
• Their negotiations with wholesalers, manufacturers, distributors and
suppliers, etc.
• The price they are going to charge customers
This is often referred to as a ‘keystone’ mark up.
In a similar way to High Street stores, you should have a 100% mark up as your start point for negotiations and retail price.
To download and complete the exercises in this guide’s module
66 Is the Price Right? Guide 9