3 Fundamental Calculations in Pricing and Quotes

Margins etc

Here we cover the 3 most commonly used calculation for quoting with an example for each. They are:

  • Discount
  • Margin
  • Mark-up

Whether someone chooses to use one or the other really depends on the type of business and the products or services sold.

Discount

This is the difference between the original or listed price and the agreed price.  For example:

Original price: £10.00

Agreed price: £8.00

Discount: £2.00    (£10.00-£8.00)

Discount in percent: 20% (£2.00 ÷ £10.00)

The calculation steps are: 

(Original Price – Agreed Price) ÷ Original Price

(£10.00 – £8.00) ÷ £10

£2 ÷ £10 = 20%

Margin

The margin is the difference between the cost of an item and the sale price, expressed as a value or percentage of the sale price

Cost:  £10

Sale Price: £12.50

Margin: 20% (or £2.50)

This means that 20% of the price is not a cost and therefore where you make your money.

The calculation steps are: 

(Sale Price – Cost) ÷ Sale Price

(£12.50 – £10) ÷ £12.50

£2.50 ÷ £12.50 = 20%

Mark-up

Mark-up is the difference between the cost of an item and the sale price but expressed as a percentage or multiple of the cost (whereas Margin uses the sale price).

Cost:  £10

Sale Price: £12.50

Mark-up: £2.50 or 25%

This means that you have added 25% to the cost price to give your selling price.

The calculation steps are: 

(Sale Price – Cost) ÷ Cost

(£12.50 – £10) ÷ £10.00

£2.50 ÷ £10.00 = 25%

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