How Can I Determine Markup?

Markup was one method that I used to determine just how well I was profiting from the items I was selling. Markup (or mark-up), is the percentage of profit that you tack on to the price you originally paid for the item. Every store, every factory, every business under the sun operates on some level of markup. It's this markup that translates in to the profits that businesses use to pay employees, pay bills, expand, and buy more inventory.

When you go to a grocery store and buy a gallon of milk for $2.89, there is a certain amount of  markup involved in that item. The store certainly didn't pay the farmer $2.89 for that gallon of milk. I have no idea what the grocer paid for that gallon of milk, but let's assume for the sake of the argument that the grocer paid $1.50 for that gallon. So, in this example, the grocers' markup is $1.39 per gallon, or a 92% markup. Now, not all of that markup is profit. Part of that $1.39 goes towards bills (the electric bill, etc.), rent, advertising, salaries and so forth. By the time it's all said and done, of that $1.39 in markup, only $.10 may be profit.

Let's look at one of my examples of an item I sold once. I once bought a collectible 6-pack of beer for $5, and sold it for $75. Here's the formula I use to determine markup:

[(sale price - original price) / original price] x 100 = markup

Let's plug in some numbers. Ready for some algebra? Never thought you'd be using algebra in your ebay sales, did ya?

[(75 - 5) / 5] x 100, or...

[70 / 5] x 100, or...

14 x 100, or

1400% markup

Whoa! Did I just earn 1400% markup on that item? Well, yes and no. How on earth could I have earned so much?

Well, if I had sold the item at $10, that would have been a 100% markup, right? A 100% markup effectively means that I've doubled the price of what I paid, which was $5 for the six-pack.

If you have a handy pocket calculator, try typing in the following equation: 5 + 1400 % =, and what do you get? You get 75, or $75, which was my sale price. So, $5, plus 1400% markup = the $75 sale price.

So, I effectively earned 1400% markup on that single item. Again, that's not my profit. That was just my markup. Profit will always be less than markup, because things will eat in to your profits. Things like those pesty ebay and paypal fees. Shipping supplies that I had to buy to package the six-pack up with (things like 2" packing tape). Add to that the gasoline to drive to the post office. Add to that the electricity it took to power my computer. You get the idea. There will always be costs involved in any business. Costs are unavoidable, so you might as well just accept them and deal with them.

So, although my markup was 1400%, my actual profit was more like 1300% or 1350%. The packing tape I used to box the item up with didn't cost a whole lot, and neither did the little bit of gas I used to drive to post office. But, costs, they are, and they do factor in to the equation. 

Perhaps the biggest costs are, yup... you guessed it, the ebay and paypal fees. The ebay fees alone on a $75 item was $4.75, and the paypal fees (the fees paypal took for transferring the money from the buyers' payal account to mine) was about $3. So, about 10% of the sale price was already eaten up by ebay and payal fees alone. 

So, my profit on this one single item was: $75 sale price - approx. $10 in fees, - $5 original cost of the item, - $2 in other costs (packing tape, gasoline, electricity to power my computer, etc.) = approximately $58 in profit.

So, $58 profit on a $75 item. Not too bad, huh? 

So, we've determined my markup as well as my approximate profit on this one single sale. There have been times when I've seen a near 100,000% markup on an item I sold. 

Don't believe me? Using my formula above, calculate my markup on a small book I bought for 50 cents at a yard sale, and sold for $50. [(50 - .50) / .50] x 100. When I do the calculations, I get 99,900% markup, and that's close enough to a 100,000% markup for me!

When was the last time you handed someone two quarters and got back a $50 bill?

I think my all-time record was something close to 250,000% markup. I have it written down somewhere. I spent $50 on some items from a closed-down department store, and walked away with about 1,000 items. I didn't pay per-item, but, rather, paid $50 for all the collective items I carried out of there. That boiled down to paying about five cents for every item I carried off the premises. 

One of those items was a 5' tall gumball machine which I sold for $125. Using the calculations, my markup was 249,900%. Again, I ask, when was the last time you handed someone a nickle and they handed you back $125? 

The power of ebay!