Are you really making money?

A little blog from my very good friend and developer of Quick Quote, Preston Shopcalsoftware.

The first thing I want to talk about for those who do not know; Markup and Margin are not the same thing!!!! If you think they are then you are probably loosing money.

Lets say you buy a blank shirt for $2.00 and sell it for $4.00 before any decorating happens to it. You basically took the shirt cost and doubled it so that would be 100% profit on the shirt, right? Wrong.. A $2.00 shirt sold for $4.00 would be 100% markup and a 50% profit margin. Lets take a quick look at how markup relates to profit margin. The same $2.00 shirt with 100% margin would sell for $400.00 . This is why it is so important to understand the difference between markup and margin. You can click on the chart below to get a closeup view of it and see the multipliers used to calculate margin.

If you are just trying to calculate dollar amounts for markup and margin and you know your cost and selling price you can just use these formulas.

Gross Profit Margin = Sales Price - Unit Cost

Markup Percentage = Gross Profit Margin/Unit Cost

Sales Price = Cost X Markup Percentage + Cost

So our $2.00 shirt selling for $4.00 would be $4.00 - $2.00 = $2.00 profit margin (not to be confused with margin percentage).

So now that we have all that math out of the way and you are now either totally enlightened or totally confused so we shall forge ahead.

When I am calculating markup on the blanks shirts I always use a minimum markup percentage as a starting point and then add to that. The minimum percentage would apply if I sold 1 shirt or 1000 shirts. But I said it was a starting point and what I mean by that is if I had a minimum of a 30% markup I may also have a sliding scale of additional percentage ranges that gets added to that 30% based on how many shirts the customer ordered. We cannot just say we will always double the price (100% markup which is 50% profit margin) because we would find that we could not competitively compete price wise on large quantity orders. You may get away with it on orders up to 50 or maybe even 100 but after that quantity you will probably start loosing jobs. For this reason most shops adjust

there markup percentage based on quantity ordered. To do this use a stepped scale that mirrors your print pricing matrix quantity breaks. If we have a 30% minimum markup on the garments and a low quantity we may want to mark the garment up a total of 100% so we would just add 70% to the 30% so we end up with our 100% markup. For a higher quantity we may only be able to get 80% total markup and in this case we would just add 50% to the 30% minimum.

This way of determining the total markup percentage based on quantity really only applies if you are using a program designed for pricing decorated garments. This is because they pull the garment cost pricing from a catalog and then preform the rest of the calculations based on quantity. It also allows you to set different minimum markup percentages for different garments or garment price groups. If you are using an Excel spreadsheet or pencil and paper you can just plug in the total percentage at the time of calculation.

So where does the margin come into all of this and why should you care. Well for the garment decorating industry you need to make a minimum of a 40% profit Margin (not markup) or you may as well close your doors. And that margin needs to hold after ALL expenses are applied. Knowing how to calculate your margin will help you better understand just where your business sits financially.

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