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.
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).
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.
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%.
You can use GAM in several ways within your pricing strategy:
Optimizing your GAM can bring several benefits to your business:
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.
