Markup Calculator

About this Markup Calculator

The Markup Calculator shows how much a selling price exceeds its underlying cost and expresses that difference as a percentage of cost. It is useful for pricing products, quoting jobs and comparing pricing strategies.

Markup and margin are two different ways of describing profitability from the same sale, and confusing them is a common and costly pricing mistake: markup is calculated as a percentage of cost, while margin is calculated as a percentage of the selling price.

For related tasks, try Profit Margin Calculator, Discount Calculator or Break-Even Calculator.

How the calculation works

Markup amount equals selling price minus cost. Markup percentage equals markup amount ÷ cost × 100. This differs from profit margin, which divides profit by selling revenue.

How to use it

1. Enter the cost.
2. Enter the selling price.
3. Calculate to see markup amount and markup percentage.

Practical example

A product that costs 80 and sells for 100 has a markup of 20, or 25% of cost.

A product costing 40 with a 50% markup sells for 60, but that same 60 selling price actually represents a 33.3% profit margin, not 50%, since margin and markup measure the same profit against two different base numbers.

Things to double-check

A markup percentage is always a larger number than the margin percentage for the same sale, since markup is calculated against the smaller cost figure while margin is calculated against the larger selling price figure.

The markup formula

Markup is the profit on an item expressed as a percentage of its cost. The formula is selling price minus cost, divided by cost. If an item costs 800 and sells for 1,100, the profit is 300 and the markup is 37.5 percent. To set a price from a markup, multiply the cost by one plus the markup: a 40 percent markup on 800 gives 1,120. Because the base is cost, markup percentages are always larger than the margin you would calculate on the same sale, which is where most pricing confusion starts.

Converting between markup and margin

Margin is profit divided by the selling price, so the two measures are linked by simple formulas. Margin equals markup divided by one plus markup, and markup equals margin divided by one minus margin. A 50 percent markup is a 33.3 percent margin, a 100 percent markup is a 50 percent margin, and a 25 percent markup is a 20 percent margin. If you want a 40 percent margin, you need a markup of about 66.7 percent. Decide which measure your accounts, suppliers or industry use, and use it consistently when you set prices.

Setting prices sensibly

A markup has to cover more than the cost of the product. Rent, wages, marketing, wastage, card fees and returns all come out of the profit, so a markup that looks generous may leave almost nothing. Many retailers use standard markups for different product types, but the right figure depends on competition and what customers will pay. Remember that discounts cut into margin: taking 20 percent off an item with a 50 percent markup (cost 100, price 150, sale price 120) leaves a markup of only 20 percent and a margin of about 16.7 percent.

A worked pricing example

Imagine a product that costs 1,000, with 250 of overheads such as rent and packaging allocated to each unit, and you want a 10 percent net margin on the selling price. Price equals total cost divided by one minus the margin, so 1,250 divided by 0.90 is about 1,389. Measured against the product cost of 1,000, that is a markup of about 38.9 percent. If you had applied a flat 10 percent markup on cost you would have charged 1,100 and lost money after overheads. Work out the cost you must cover before choosing a percentage.

Prices, tax and what the customer pays

Markup is applied to the pre-tax cost, and tax is added afterwards. A product with a cost of 1,000 and a 40 percent markup sells for 1,400 before tax. With 15 percent sales tax or VAT on top, the customer pays 1,610, but your revenue is still 1,400. Your margin is 400 divided by 1,400, which is about 28.6 percent. If you set the shelf price at 1,400 including tax, your revenue is only 1,217 and the profit is just 217. Decide whether your prices include tax before you set the markup.

Worked example: pricing three products

A shop buys three items at costs of 200, 550 and 1,200 and sets markups of 60, 45 and 30 percent. The prices are 320, 797.50 and 1,560. The profit per item is 120, 247.50 and 360, and the margins on the selling price are 37.5, 31.0 and 23.1 percent. Notice that the item with the lowest markup brings the most money per sale but the lowest margin. Selling more of the cheaper item might make less sense than selling fewer of the dearer one. Looking at both markup and margin shows which products actually carry the business.

Typical markups by type of business

Typical markups differ widely. Supermarkets operate with small markups on staples and larger ones on specialty goods. Clothing retailers often double the wholesale price, a practice sometimes called keystone pricing, while jewellery and gift shops may mark up much more. Restaurants commonly price a dish at several times the cost of its ingredients to pay for labour and rent. Wholesale prices are normally lower than retail, so the markup at each step is smaller. Treat any rule of thumb as a starting point and test it against your own costs and your customers' willingness to pay.

Markup for services and fixed-price jobs

Services use markup too. If your cost per hour, including wages and overheads, is 25 and you apply a 60 percent markup, you charge 40 an hour. For a fixed-price job, estimate the cost carefully, add a contingency for surprises and then add your markup. A job with an estimated cost of 5,000, a 20 percent contingency and a 25 percent markup is priced at 5,000 times 1.2 times 1.25, which is 7,500. If the contingency is not used, the extra becomes profit, and if the job overruns by more than 20 percent, your markup is the first thing to disappear. Keep records of actual costs so that your estimates improve.

Mistakes to avoid when marking up

Common mistakes include using a margin figure as if it were a markup, leaving out costs such as packaging, returns, wastage and payment fees, and forgetting that sales tax is added after the markup. Another is copying a competitor without knowing their costs, which may be lower than yours. Pricing too low to win customers can cost more than it earns, while pricing too high loses sales. Review your prices every few months, track the margin on each product, and drop or reprice items that sell but do not make money. A small, regular review is better than a big correction after a bad year.

Key terms explained

Cost of goods is what you pay to buy or make an item. Markup is the profit added to the cost, shown as a percentage of cost. Gross margin is the profit as a percentage of the selling price. The recommended retail price is the price suggested by the manufacturer. Wholesale prices are those charged to retailers, and overhead covers general costs such as rent and wages that are not part of a single product. Keystone pricing means doubling the wholesale cost, which is a markup of 100 percent and a margin of 50 percent.

Rules of thumb and quick checks

A handy conversion: a markup of 25 percent equals a margin of 20 percent, 50 equals 33.3, 100 equals 50, 150 equals 60 and 200 equals 66.7. To set a price, multiply the cost by one plus the markup, and to find the cost, divide the price by one plus the markup. If a competitor's price is below your cost plus overhead, do not copy it blindly. Check that the margin after discounts, returns and payment fees is still positive, and review prices when supplier costs change.

Read the full guide

Want the background, a step-by-step example and the common mistakes? Read Markup vs Margin: How to Price a Product and Protect Your Profit. Markup and margin are not the same. Learn both formulas, how to convert between them, how to price for a target margin and how discounts reduce profit.

Frequently asked questions