1. Understand how most wholesalers and retailers set their prices by using markups.
A markup is a dollar amount added to the cost of products to get the selling price. Markups are usually stated as percentages rather than a dollar amount. The markup percent is the percentage of selling price that is added to the cost to get the selling price. The markups are related to the selling price for convenience. Many intermediaries select a standard markup percent and then apply it to all their products. This method makes pricing much easier. Different companies in the same type of business might use the same markup percent because their operating expenses might be similar. As long as the markup is large enough to cover their expenses, it will be acceptable. A manager might use the firm’s gross margin to set their markup prices. The gross margin is the amount left after subtracting the cost of sales from the net sales to cover the operating expenses. Smart producers pay attention to the gross margins and standard markups of intermediaries in their channel. They allow discounts similar to the standard markups these intermediaries expect. Different firms in a channel often use different markups. A markup chain is the sequence of markups firms use at different levels in a channel; it determines the price structure in the whole channel. The markup price is figured on the selling price at each level of the channel. Some people think that high markups would equal to higher profits. This is often not true. If the markup is too high, the customers will not buy the product. This in turn would mean fewer profits.

2. Understand why turnover is so important to pricing
Some retailers and wholesalers try to speed turnover to increase profit. If they can sell a much greater amount in the same time period, they may be able to take a lower markup and still earn