Markup on goods
02.02.2021 23:37
When starting a business, many entrepreneurs ask questions: "What price should I set for the product?", "Is there a minimum markup for the product? And the maximum? ", "Does the state regulate prices for goods or not? ". We will try to answer these and other questions in this article.
When setting the price for a product, the cost of the product or service and a markup are taken into account. The cost of production includes the cost of manufacturing a unit of product (materials, spare parts, rent, staff salaries, delivery, advertising, etc.). The margin includes fixed costs, taxes, intermediary commission and, most importantly, profit.
Trade margin is an amount or percentage added to the cost or purchase price of a product. The purpose of the markup is to cover costs, distinguish the product in a competitive niche, and make a profit.
How to calculate the margin
The margin can be calculated in one of two ways:
- Include all costs in the cost price, and the margin will be equal to the net profit.
- Separate costs: include variable costs in the cost price and fixed costs in the margin.
In order to determine the minimum price for a product, you need to calculate the cost price and add fixed costs to it. This is how you determine the break-even point.
The Law of Ukraine "On Prices and Pricing" provides for two options for setting prices: free price and "state price".
State price regulation is applied to socially important goods, fuel, utilities and monopoly companies.
The state regulates prices by setting them:
- fixed prices;
- marginal prices;
- maximum levels of trade margin;
- marginal profitability standards;
- the size of the supplier's award.
What goods can be marked up by more than 20%?
Due to the quarantine, a list of goods subject to strict price regulation was approved in 2020. The cost of such goods is monitored by the State Service of Ukraine on Food Safety and Consumer Protection, and changes in retail prices must be declared. The regulation will continue until the end of the quarantine.
Food products subject to state price regulation
- Buckwheat groats
- Granulated sugar
- High-grade wheat flour
- Domestically produced pasta (vermicelli made from high-grade wheat flour)
- Pasteurized milk with a fat content of 2.5 percent (in film)
- Rye-wheat bread
- Eggs of chicken category C1
- Poultry (chicken carcass)
- Mineral non-carbonated water
- Butter with a fat content of 72.5 percent
8 medicines, personal protective equipment, antiseptics and disinfectants with state price regulation
Medicines
- Paracetamol
- Azithromycin
- Amoxicillin and beta-lactamase inhibitor
- Ampicillin
- Amoxicillin
- Ceftriaxone
- Moxifloxacin
Antiseptics and disinfectants
- Chlorhexidine (Chlorhexidine)
- Ethanol (Ethanol)
- Iodine povidone (Povidone iodine)
- Alcohol-based hand sanitizer (Alcohol based hand rub)
- Chlorine-containing and other disinfectants for disinfecting surfaces, materials, and equipment (Chlorine base compound)
- Chloroxylenol (Chloroxylenol)
- Alcohol-based hand sanitizer pocket-sized
- Disinfectant for surface treatment
- Hand and skin disinfectant
- Detergent-disinfectant (disinfectant) for washing
- Disinfectant for tools and equipment
Personal protective equipment
- Disposable medical cap
- Medical mask
- Disposable medical isolation gown
- Biological protection suit/overalls
- Waterproof laboratory suits
- Medical gloves sterile or non-sterile
- Nitrile gloves
- Latex gloves unpowered
- Chain mail (Kevlar) gloves (high-risk gloves)
- Full face mask/half mask
- Protective shield
- Protective goggles
- FFP2 or FFP3 respirator
- Medical apron
- Disposable shoe covers
- Rubber boots
- Progumovanny water-resistant medical apron
- Medical gauze
- Protective half mask
- Filters for full-face and half-face masks
For these goods, a markup of up to 20% is allowed. If you increase or change the price by 5% or more, you must report to the State Service of Ukraine on Food Safety and Consumer Protection.
In addition to controlling the growth of prices for certain types of goods, Ukrainian legislation provides for the establishment of minimum selling prices for alcohol and maximum prices for tobacco products.
The minimum wholesale and retail prices for some types of alcohol change several times a year, so you need to monitor the cost of such goods in the store, as selling them cheaper than the minimum price is subject to a fine.
Tobacco products have maximum prices that cannot be sold above. These prices are usually printed on the package and are usually printed by the manufacturer.
Conclusion: In 2017, Ukraine abolished state regulation of prices for socially important goods and canceled the maximum trade margin. Due to the introduction of quarantine, in 2020, state regulation of prices for 10 types of food, 8 medicines, and personal protective equipment was reintroduced. This regulation will continue until the end of the quarantine.
Ukraine also approved Resolution No. 957, which provides for the establishment of a minimum price for alcohol and a maximum price for tobacco products.
In other cases, the entrepreneur can calculate the markup and set the price of the goods at his or her discretion.
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