Understanding  Gross Additional Markup

When it comes to retail math and strategic planning, pricing strategy is one of the most critical components that can make or break your business. And among the different pricing strategies you can adopt, gross additional markup deserves a special mention.

Gross additional markup (GAM) is the difference between the selling price and the cost of goods sold. It's a measure of the profit margin you can achieve on each sale. In this post, we'll answer 6 popular questions about gross additional markup to help you understand its importance and how you can use it to boost your sales performance.

What Is Gross Additional Markup?

Gross additional markup is the amount you add to the cost of goods sold to arrive at the selling price. For example, if your cost of goods sold is \$50 and you want to achieve a gross profit margin of 40%, your selling price will be \$83.33 (\$50 + \$33.33).

Why Is Gross Additional Markup Important?

Gross additional markup is important because it directly affects your profit margin. The higher your GAM, the higher your profit margin will be. By setting optimal GAM levels for each product or category, you can maximize your profits while remaining competitive in the market.

How Do You Calculate Gross Additional Markup?

To calculate GAM, use the following formula:

GAM = (Selling Price - Cost of Goods Sold) / Cost of Goods Sold

For example, if your selling price is \$100 and your cost of goods sold is \$70, your GAM would be 43%.

How Can You Use Gross Additional Markup in Your Pricing Strategy?

You can use GAM in several ways within your pricing strategy:

• Set different GAM levels for different products or categories based on their demand, competition, and profit potential.
• Adjust your GAM levels according to changes in costs or market conditions.
• Use different pricing tactics, such as discounts or promotions, to achieve specific GAM goals.

What Are the Benefits of Optimizing Gross Additional Markup?

Optimizing your GAM can bring several benefits to your business:

• Higher profit margins: By increasing your GAM, you can increase your profit margin without raising your prices.
• Better sales performance: By setting optimal GAM levels for each product, you can attract more customers and increase your sales.
• Improved competitiveness: By balancing your prices and margins, you can remain competitive in the market and avoid losing customers to lower-priced competitors.

How Can You Monitor Your Gross Additional Markup?

To monitor your GAM, you need to track both your selling prices and your costs of goods sold. You can use retail math formulas such as gross margin and markup percentage to analyze your results and identify areas for improvement. By regularly reviewing your GAM levels and adjusting them as needed, you can ensure that you're maximizing your profits while delivering value to your customers.

References

• Karpinski, K. (2014). Retail Analytics: The Secret Weapon. John Wiley & Sons.
• Nagle, T. T., & Holden, R. K. (2002). The strategy and tactics of pricing: A guide to growing more profitably. Prentice Hall.
• Rathore, D., & Maurya, A. K. (2016). Pricing Strategies for Small Business: A Comprehensive Guide to Strategic Pricing Techniques. Createspace Independent Publishing Platform.
• Schoeffler, B., Buzzell, R., & Heany, D. F. (1974). Impact of strategic planning on profit performance. Harvard Business Review.
• Upton, D. M., & Eccles, R. G. (2010). Making strategy work: Leading effective execution and change. FT Press.
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