in sales math, a distributor takes a 8% margin not a mark up of 8%. I
know he's makeing more money that way. What's the formula to apply
this to a $ 10.00 item? please give me an example. Thanks

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Clarification of Question by floridachef-ga on 18 Oct 2003 08:19 PDT

I know if you figure it as a margin you make more/pay more. What would
be the math formula to figure a 8% margin on a $10.00 for example? $
10.00 times something? $10.00 divided by something?

Hi floridachef-ga,

Thank you for your question. I did a quick search and found a few
sites that you may find interesting. Believe it or not, a website for
a furniture outlet explained margin versus markup very nicely.

Forney Auctions
http://www.forneyauctions.com/how_to_buy_furniture.htm

They define margin and mark up as the following:

Margin: Applying a simple formula will determine how much the margin
will be based on a percentage that the retailer expects to make. The
retailer will set a margin that ensures that they will be competitive
in the local market. It may or may not reflect the actual value of an
item. In your example, we are looking to make an 8% margin assuming
that our item costs $10. To figure out our sales price we use the
following formula, expressing the margin as a decimal (i.e., 8% =
.08):

Final Cost  = (Cost of item)/(1 – desired margin)

so

Final Cost = $10/(1 - .08) = $10/.92 = $10.87

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Markup: In the case of markup this is a problem based on supply and
demand. A retailer simply “tacks on” a dollar value or percentage that
will bring about a desired sales price. If you want to mark up an item
using a percentage use the following formula (again expressing the
markup as a percentage):

Final Cost = Cost of item) x (1 + desired markup)

So

Final Cost = 10 x (1 + .08) = 10 x 1.08 = $10.80

Therefore, using an 8% margin yields an additional $.87 and an 8%
markup yields only an additional $.80. Of course just tacking on more
money to the price (in the form of a markup) will ensure that a
retailer can receive the price that he desires. Then use the margin
formula to determine what the profit margin is. There are a number of
websites that explain markup versus margin and how margin is the more
accurate reflection of true profits.

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Inside Contractor Management
http://www.mrhvac.com/newsletter/Inside%20Contractor%20Management%204-4-2002%20Issue.pdf.

This is a contractors newsletter discussing the difference between
markup and margin, and how that is a common pitfall when trying to
increase revenues.

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AAA Math
http://www.aaamath.com/B/mny84_x5.htm

Here is another explanation of how percentage markup works. This site
is a great reference for math of various levels.

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Agri-culture Health
http://www.agri-culturehealth.com/agri_marketing/ptfm/chapter5/PP.htm

This is yet another site with explanations and equations for markup
and margin.
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Thank you again for an excellent question. If there are points that
are unclear, please let me know so I can clarify them.

Sincerely,
Boquinha-ga

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Google Search Strategy
sales math margin versus markup
://www.google.com/search?sourceid=navclient&ie=UTF-8&oe=UTF-8&q=sales+math+margin+versus+markup

sales percent markup
://www.google.com/search?hl=en&lr=&ie=UTF-8&oe=UTF-8&safe=active&q=sales+percent+markup

sales percent margin equation
://www.google.com/search?sourceid=navclient&ie=UTF-8&oe=UTF-8&q=sales+percent+margin+equation

You can make more money if you take 8% of a higher number.  Therefore
if a distributor takes 8% of the total price (his cost + commission),
this is higher than taking 8% of just his cost.  If something costs a
customer $10, then the distributor could take 8% of his cost $9.26 and
keep $.74. He's keeping 8% mark up.  If he keeps 8% margin (8% of the
selling price) then he keeps $.80.

To find 8% of $10, the formula is .08 x 10 = .80.