The retail markup formula is used to calculate what type of markup a retailer should do. Obviously the retailer needs to make money for himself. That is why he is business and the need to set a correct retail price is pivotal to his chances of success. It's better to sell more items at less then less at more and the higher a retailer prices their product, the reduced chances are of the product selling. Other factors come into consideration when trying to set a retail price. One is the product itself. What is it and what is the demand for it? What is the competition like for it? If the retailer is the only outlet selling the product then that provides more leverage in pricing but if the consumer can buy the product from anywhere the retailer has less leverage. Is it a product which is now highly in demand? If so, consumer would be more willing to pay a little extra for it. Would the retailer want to lower the markup so as to build up loyalty and a relationship with the consumer? That is more of a long term approach. All of these questions must be answered which is why being a retailer isn't so easy and why many businesses fail and go under.