Determining Base Price
Before you can calculate markup of cost, you must determine the base price of your merchandise. This includes the cost of goods sold and a percentage of overhead expenses. The cost of goods sold includes all expenses related to the production of the merchandise, such as materials, manufacturing costs and labor. Overhead costs include the other expenses related to running the business, such as utilities, rent, advertising, packaging, shipping and payroll expenses.
Using Markup to Determine Retail Price
To calculate the necessary retail price for your merchandise or services, you must consider the amount of profit you wish to earn and compare it to the highest price the market will tolerate. For example, to earn a 30 percent profit on each item you sell, the retail price of each item must equal the wholesale price plus a 30 percent markup of the wholesale cost. However, if the current market price of the item is significantly lower than the price you calculate, you must typically decrease your markup and settle for a lower percentage of profit.