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The buyer and/or manager must consider a variety of factors when determining a selling price.
The selling price must:
- Cover operating expenses, freight, reductions in price and markdowns or discounts
- Be competitive with other college store prices
- Promote customer acceptance of the merchandise
- Increase sales and turnover
- Result in satisfactory profit
Margin
Store management must know its profit goals before attempting to set prices. Based on these goals, subsequent pricing decisions and desired margins need to be determined.
Margin is the desired amount established and earned on the sale of a product. It is the difference between the cost (the amount the store paid for the item) and the selling price (the amount at which the item was sold) and is expressed as either a dollar amount or a percentage of the selling price.
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If the cost of an item is $6 and the selling price is $10, then the margin dollar amount is $4.
Margin Dollar Amount = Selling Price - Cost Margin Dollar Amount = $10 - $6 = $4 |
Though the term margin can be used interchangeably with the retail term "markon," NACS Education uses the term "margin" when expressing the amount earned on retail sales and calculates it based on the selling price of the merchandise (not the cost).
The store's desired margin on each product can be established by using industry benchmarks, then custom-designed to meet the financial conditions of the store.
The College Store Industry Financial Report indicates that the average margin on new course books for college stores serving four-year institutions is 22.4%, 37.8% for insignia items and 35.8% for used books (based on net sales-the amount of money that a store receives from customers after markdowns, returns and other deductions are taken).
Calculate an item's selling price to achieve a desired margin as follows:
(Desired Cost of Goods Percentage = 100% - Margin Percentage)
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If the store desires a 40% margin for an item costing $6, then the selling price would be $10.00:
Desired Cost of Goods Percentage = 100% - Margin Percentage Desired Cost of Goods Percentage = 100% - 40% = 60% Selling Price = Cost / Desired Cost of Goods Percentage Selling Price = $6 / .60 or 60% = $10.00 |
Margin dollar amount, percentage and selling price can be calculated several ways if you know at least two of the three numbers.
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If an item is sold at a 40% margin with a selling price of $10, what is the margin dollar amount?
Margin Dollar Amount = Margin Percentage x Selling Price Margin Dollar Amount = 40% x $10 = $4 |
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If the store adds a 40% margin of $4 to the cost of an item, what is the item's selling price?
Selling Price = Margin Dollar Amount / Margin Percentage Selling Price = $4 / 40% = $10 |
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If the cost of an item is $6 and the selling price is $10, what is the margin dollar amount and the margin percentage?
Margin Dollar Amount = Selling Price - Cost Margin Dollar Amount = $10 - $6 = $4 Margin Percentage = Margin Dollar Amount / Selling Price Margin Percentage = $4 / $10 = .40 or 40% |
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