What does commercial markup mean in Romania?
Commercial markup refers to the difference between the selling price and the costs incurred to produce a good or service.
According to Law no. 19/1971, Article 61, “The commercial markup (margin) is intended to cover the standardized expenses for the distribution of goods and to ensure a profit for wholesale and retail commercial organizations. It is established by presidential decree, by products and product groups, as applicable, and is included in their retail price.“
The introduction of a commercial markup is justified for a company because it contributes to part of the profit it will obtain, as well as to cover the production-related expenses.
Thus, the commercial markup covers both the cost of the product and related expenses: rent, salaries, utility bills, maintenance of the production facility, etc.
The value of the commercial markup is determined according to the market price, so commercial entities can set their own fee, but they will be limited by supply costs and market prices.
For example, if a company adds excessively high costs, there is a risk that products will not sell, resulting in the company no longer making profits.
How to calculate commercial markup in Romania
The calculation of commercial markup may vary from one company to another, depending on the products it provides to customers.
However, the calculation does not require extensive mathematical knowledge, since markup represents, as previously mentioned, the difference between the final price of the good/service and the production cost.
For example, if the production price of a good is 100 lei and the production cost is 70 lei, the final result of 30 lei represents the markup charged by the company.
Commercial markup = Final price of the good/service – Production cost
In Romania, the Government has set a maximum commercial markup of 20% for all food products made in the country, to reduce the amount of imported goods purchased by customers.
Markup cap in Romania
The markup cap refers to the final price of a product category that cannot be exceeded. In other words, capping prices means prohibiting traders from adding excessively high prices to their products.
According to Emergency Ordinance no. 5/2024, the deadline for limiting the commercial markup on basic foods in Romania has been extended until December 31, 2024.
Maximum commercial markup in Romania
According to Emergency Ordinance no. 67 of June 30, 2023, Article 3, “The commercial markup rate practiced by the processor is a maximum of 20% relative to the production cost of the product, calculated according to the applicable accounting regulations” and “the cumulative commercial markup rate practiced throughout the distribution chain, regardless of the number of distributors in the chain, is a maximum of 5% compared to the purchase price, plus operational costs“.
Thus, the commercial markup that can be implemented by the producer is maximum 20%.
In conclusion, commercial markup plays an essential role in an organization, being a profit-generating factor, as long as it is applied in accordance with market demand and supply. To support customers, governments have introduced various methods to reduce excessive markups, using price caps.
In situations involving the interpretation or application of regulations related to commercial markup, a commercial law attorney can provide detailed legal advice, ensuring compliance with applicable legislation and protecting company interests in potential disputes or audits by authorities.