Question

why would a business owner need to do a mark up or mark down. how would you go about it?

Answer 1

As we know that mark up and mark down both are very vital price policy adopted by the business owners and these both are adopted in different business conditions.

In case of good market conditions, a business owner need to fix a good mark up over incurred total costs because good mark up will result into good profits for the business thus a proper mark up policy must be considered to enhance profitability of the business. We also know that mark up policy is adopted on the basis of overall costs incurred, minimum required profits for survival and policies of the competitors etc. Thus we can say that mark up policy is adopted in case of good & bright market conditions and in case of good demands.

So for mark up, a business owner set a certain portion of margin over total incurred costs. Suppose a business incurred a total costs per unit $80 then a business owner can fix 10% mark up which will result into a selling price of $88 per unit.

Mark down policy is just opposite to mark up policy because in case of mark down a business owner make reduction in the prices of the products. So in case of mark down seller sells products at lower prices in compare to earlier prices. This policy is adopted in case of weak demands in the market, in case of dull market conditions, in case of lower prices offered by the competitors etc.

So for maintaining demands of the business the owner can adopt policy of mark down because it will help in keeping demands intact or can help in increasing demands or it can also help in utilising all resources of the business due to an increase in demand. Thus we can say that mark down price policy is adopted by the business owner due to several business conditions.

So for mark down, a business owner set selling price below earlier price by making a reduction in the selling price. Suppose a business selling a product per unit at $80 then a business owner can make a mark down of 10% which will result into a selling price of $72 per unit.