Len in PHoenix wrote:
I think the clerk got the number correct but not the business term. Instead of 40 "percent" he should have said 40 "gross margin points" or just "gross margin."
Here's the math: (selling price - cost of goods)/selling price
$542 selling price - $325 cost = $217 gross margin dollars
$217 gross margin dollars / $542 selling price = 40.036 gross margin points
By the time you factor in all the other costs related to running a business they are actually working on a rather thin profit. The best way to get their prices down and still make a profit would be to improve their purchasing strategy.
And yes, I play the corporate game during the week. Sometimes it's hard to shut it off.
This is the correct answer. If you have a calculator with with cost and sell buttons do the following. Put in 325, hit the cost button, put in 542 and hit the sell button. It equals 40.036 just like this post says. That is how a business works but apparently whoever you talked to does not know how to explain it.
Or, put in 325 and hit cost then put in 40 and hit margin = $541.67
It's not 40 percent markup it's 40 percent margin.
