Markup and margin: formulas, common mistakes and profit control

Proper markup and margin management is not just a matter of setting a price, but the basis for real control over business profitability. Even with stable turnover, calculation errors, incorrect cost values, or sales made «at a loss» can create the illusion of profit where there is none. That is why it is important to understand not only the pricing formula, but also the logic by which the accounting system calculates markup, profitability, and financial results.

In this article, we will look at how the price is formed, where markup is set, which user actions most often distort margin, and what should be checked regularly so that reports reflect real management profit. The material is structured as a practical guide: formulas, typical mistakes, and a checklist for weekly control.

1. Formulas in Torgsoft: markup and price formation

In Torgsoft, the concepts of "markup" and "margin" (profitability) are closely connected with the settings of goods receipt and cost calculation methods.

Basic retail price formula. Retail price = (Purchase price + VAT) + Markup.

• Actual markup (%) — this is the indicator you see in reports and warehouse status. It is calculated using the formula: ((Retail price — Purchase price) / Purchase price) * 100%.

• Profitability coefficient in analyses is calculated as the ratio of total sales amount to the cost of goods received.

Important pricing nuances:

1. VAT. If the parameter «Add VAT to the purchase price of goods» is enabled in the goods receipt note settings, the program will first add tax to the purchase price and then apply the markup to that amount. If the supplier price already includes VAT, this checkbox must not be enabled, otherwise you will get «tax on tax».

2. Exchange rate. If goods are received in foreign currency, the retail price in hryvnias is formed by multiplying the price in foreign currency by the rate specified in the receipt note, plus the markup percentage.

3. Additional expenses. Delivery or customs clearance costs can be included in the cost value through the «Invoice expenses» tab.

2. Where and how is markup set?

In Torgsoft, there are several levels of markup management:

1. In «Product type» (category tree). You can set the default markup percentage for an entire product group, both retail and wholesale. When creating a new product card, this markup will be applied automatically.

2. Markup group (threshold markup). You can configure dynamic markup depending on the purchase price, for example, 50% for low-cost goods and 20% for high-cost goods. This is configured in the «Product type» — «Markup group» menu.

3. In the Goods receipt, Warehouse status, Calculation of retail and wholesale prices by markup and exchange rate forms, you can manually change the markup for a specific batch or a specific product. If you change the retail price manually, the program will automatically recalculate the markup percentage.

4. Import. When importing receipt notes from Excel, you can choose the markup formation method: take it from the file, from the import settings, or from the product type card.

3. Typical mistakes that distort margin

The most common issues users contact support about are related to incorrect profit display caused by accounting errors.

TOP 5 mistakes:

1. Changing the purchase price «retroactively». Users often change the purchase price in an old goods receipt note without recalculating cost. This leads to incorrect profit figures in reports for past periods. To change prices, you should use special correction tools or process a supplier return.

2. Selling goods «at a loss» (negative stock balances). If negative stock sales are allowed and a product is sold before it is received into stock, its cost at the time of sale is equal to 0. Accordingly, the program will show 100% profit, since the entire sales amount will be treated as profit. When you later receive the goods into stock, the cost value for the sales document will be assigned after manual or automatic cost calculation in the program.

3. Incorrect cost calculation. If automatic cost calculation is disabled, reports will show incorrect data. The cost value may disappear when a new period, for example a new month, begins if recalculation has not been performed.

4. Confusion with currencies. If goods are received in foreign currency, but the rate is set as 1:1 to the hryvnia or has not been updated, the cost will be understated and the markup will be artificially overstated.

5. Manual discounts and rounding. Uncontrolled manual cashier discounts or incorrect rounding settings, for example rounding to whole hryvnias for low-cost goods, can «eat up» the entire margin.

4. What to check by product every week (Checklist)

To ensure that your profit reports are correct, it is recommended to perform the following actions weekly, or before closing a period:

1. Check for negative stock balances

• What should be done? Go to Warehouse — Warehouse status and filter products with negative quantities.

• Why? Products sold «at a loss» have zero cost in profit reports. You need to carry out an inventory count or receive the goods into stock.

2. Monitor goods with zero cost

• What should be done? Generate the report Analysis — Profitability of sales for the period. Sort the data by the "Cost of sales" column and pay attention to the 0.00 values.

• Why? This will show goods that were sold without being linked to a supply batch, which means accounting has been handled incorrectly.

3. Recalculate cost

• What should be done? On the "Warehouse" — "Warehouse status" form, run cost recalculation for products using the corresponding action, or set up an automatic scheduled task for cost recalculation on the "Settings" — "Scheduled tasks" form.

• Why? This will correct situations where goods receipt was entered later than the sale took place and will update cost values for products in reports.

4. Check for «stuck» goods receipt notes

• What should be done? Check goods receipt notes on the "Warehouse" — "Goods receipt note register" form. All notes must be active.

• Why? If a goods receipt note is inactive, the quantity of goods is not recorded in stock, so the sale of goods from that note will take place into negative stock.

5. Analyze changes in purchase prices

• What should be done? In the goods receipt note, enable the switch in the "Purchase price change" field and pay attention to the color price indicators. Red means the purchase price has increased, green means it has decreased.

• Why? If the purchase price has increased and you have not changed the retail price, your margin will fall. Use Analysis — Analysis of the impact of sales price on profit.

6. Control discounts

• What should be done? Review the report Analysis — Discount usage analysis.

• Why? To identify cashier abuse of manual discounts or incorrectly configured automatic promotions that sell goods below cost.

By performing these actions regularly, you will see in the report "Analysis" — "Period" the real profit of the retail chain or store rather than distorted figures.