Mark-up Ratios

Mark-up Ratios

1. How is it calculated ?

   • Gross profit x 100 * Cost of goods sold

2. When is it satisfactory ?

   • Mark-up ratio should be high enough to generate a profit and cover business expenses, and low enough to ensure maximum customer sales

3. What does it mean ?

   • Mark-up percentage or ratio is the percentage added to the cost to the selling price in order to make a greater profit

4. When is it un-satisfactory ?

   • 1. It is unsatisfactory when it is to low and is not able to cover business expenses or generate a profit
     • 2. Mark-up ratio is un-satisfactory when it is to high and customers are not willing to pay for goods

5. What could you compare this to ?

   • 1. Compare to previous accounting records in different periods to see other expenses and profits
     • 2. Compare it to other businesses that are similar to your own

6. How can the ratio be improved ?

   • 1. Mark-up selling price of goods
     • 2. Find a cheaper supplier

7. When will it be worse ?

   • 1. If the mark-up ratio is to high and customers will not be wiling or able to pay for goods or services and therefore the business will not generate enough profit or income to cover business expenses
     • 2. If the mark-up is to low it will not cover business expenses and they will be working with a deficit rather than a surplus