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pricing for retail grocery shop(need advice)

  • 13-02-2011 3:40am
    #1
    rmflsdl
    Registered Users, Registered Users 2 Posts: 24 ✭


    Hi guys,

    which pricing decision(markup or margin) is better for retail grocery shop?

    I would like to apply different pricing methods to different items.
    How can I apply these methods according to an individual item.

    sale 75
    cost 50
    markup--->25(50%)

    sale 100
    cost 50
    margin 50--->(50%)

    50%margin is higher that 50%markup.
    can i think that it's better to apply margin to fancy items with less demand and apply markup to staples?
    on the other hand, i think that margin can be applied to cheap price and high volume items.

    is it better to apply just one pricing method to entire items?

    could anybody tell me about the advantages and disadvantages about markup and margin for retail grocery shop?


Comments

  • #2
    smcgiff
    Closed Accounts Posts: 5,943 ✭✭✭smcgiff


    Hello OP,

    For retail Mark up and Margin are methods of calculating Gross Profit. It's good to know what gross profit you are making on an item.

    However, in my opinion they are very poor if used in isolation as pricing tools.

    Much more important is, for example, the pricing structure of your competitors (local / online), and other strategies such as penetration marketing (if you're new to the market).

    Yes, you need to make a profit - that's important. But you also need to sell your stock. The optimum pricing structure is unlikely to be found by using markup/margin.


    Good luck


  • #3
    bluetech
    Closed Accounts Posts: 15 ✭bluetech


    rmflsdl wrote: »
    is it better to apply just one pricing method to entire items?

    could anybody tell me about the advantages and disadvantages about markup and margin for retail grocery shop?

    The main difference is that margin relates gross profit to your selling price. Markup relates gross profit to your cost price.

    I would advise that you focus on margin and not markup; and focus on one only.

    Markup doesn't sufficiently express or fully describe your gross profit because the intended markup isn't always realised. Goods that you sell may need to be discounted or have the original retail price changed. Indeed some products would be removed from sale (e.g. BBD expired) thereby eliminating the sale altogether; yet the purchase price is still paid. For these reasons, markup will not yield an accurate measurement of gross profit.

    Having good back office retail systems (which my business creates and installs for progressive retailers in Ireland) will help you manage these variables in your retail business.

    Margin is more accurate because it measures profit against actual sales. Gross (profit) margin is derived by subtracting purchases (cost of goods sold) from sales. Gross margin is the standard for determining and analysing profit in the FMCG business, and profit earned on a single product or an entire business is expressed in terms of margin. A good retail ERP system will give you an average margin for each and everyone of your products so that you can see how each prodiuct performed over any period of time.

    Hope this helps.


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