Page 81 - Paulisms: Gold Nuggets for Small Business
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your cost price, e.g. $100 cost price divided by 0.8 is a $125 selling price, which is a $25 gross profit margin.
If your mark-up was the 20%, the maths would be $100 x 1.2 = $120 (the 1.2 is 100% plus 20%). This gives a $20 gross profit margin as opposed to $25. Big difference!
Business is all about GROSS PROFIT MARGIN. That’s what your accounting books will be showing you each month or year end: gross profit margin (as a percentage or a dollar amount) not mark-up.
Get the idea of a ‘mark-up’ right out of your psyche.
This confusion and lack of understanding of the maths is why I was always reluctant to tell sales people or estimators what our actual cost price was. Quite often they would use mark-up as opposed to gross profit
