Markup: Percentage Formula, Calculator, and Examples

When you’ve just started a small business or entered the world of entrepreneurship, grasping the basic concepts and learning the business language is the priority. You don’t want to feel out of your depth when speaking with peers, nor mess with prices, costs, and taxes. And so, markup is one of the first notions you need to understand because it’s impossible to sell anything otherwise. As you’ll encounter various wording on the matter (e.g., markup, markup percentage, markup calculator, multiplier, etc.), we’ve compiled a comprehensive guide to help you gather all the knowledge you need in one go.

What Is Markup?

Markup is what makes your business profitable. It is the difference between the cost of a product and its selling price. Markup is what you add to the total cost of producing a product or service to get to the selling price that brings you profit. As you’ll find out, markup can be expressed as a value, a percentage, or a ratio.

Markup Percentage (%) = (Selling Price-Cost)/Cost*100

What Is the Markup Percentage Formula?

Like many other business concepts, markup is often given as a percentage, not a fixed value. This makes sense because products and services have different costs and selling prices. The markup percentage represents the ratio between markup and the production cost and can be applied to any product or service. For example, in your industry, a 25% markup percentage may be the norm. The markup for individual products differs, but the markup percentage remains the same.

Therefore, the markup percentage formula is as follows:

Markup Percentage (%) = (Selling Price-Cost)/Cost*100

For instance, if it costs you $10 to manufacture a product and sell it for $12, the markup percentage will be

(12-10)/10*100=20%

It works the other way around, too. If you want to apply a markup percentage of 25% to a production cost of $10, the selling price will be:

Selling Price = (Cost*(Markup Percentage+100))/100 = ($10*(25+100))/100=$12.5

Markup Percentage or Multiplier?

Another way of referring to markup in a more general manner is to use the term multiplier. The multiplier is simply the factor with which you multiply the production cost to reach the selling price:

Markup Multiplier = (Selling Price)/Cost

To continue the example above, if it costs you $10 to manufacture a product and sell it for $12, the multiplier is 1.2. Here is a table to give you an overall understanding of markup, markup percentage, and markup multiplier:

What Is a Markup Calculator?

A markup calculator is a program that automatically computes the selling price from cost and markup percentage. Often, a markup calculator computes any variable from the markup formula if you give the other ones. For example, a markup calculator usually computes the following:

• Selling price from cost and markup percentage
• Markup from the selling price and the cost
• Markup percentage from the selling price and the cost
• Markup from markup percentage, selling price, and cost

It is a fast and verified way to deal with markup without needing to work with formulas and do the math yourself.

How to Calculate Markup Percentage?

To calculate the markup percentage by hand, you need to establish the following information:

• The cost of the product or service you are selling
• The selling price of the product or service, or the profit you intend to make (e.g., it costs you $10 to make a product and you can sell it for $20, or it costs you $10 to make a product and you want to have a $2 profit on each sold item)
• If you didn’t establish the profit on the previous step, do it now. Profit is the difference between the selling price and the production cost
• Divide the profit by the cost and multiply the result by 100 to get the markup percentage (%).

Related: Percentage calculator.

What Do I Need to Consider When I Calculate Markup?

A few variables are essential for calculating markup. Not only can’t you get to the right value without them, but you also can’t make a profit without them. These critical variables are:

• The cost of goods sold (COGS) encompasses all the expenses you’ve incurred to deliver the product or service you are selling. Consider production costs, personnel expenses, logistics, accountancy, expert counseling, distribution, and any other costs, direct or indirect.
• Market conditions refer to establishing a competitive selling price that aligns with your competitors’ strategies and demand for a certain product or service. For example, you can have higher selling prices for products that are in demand or have few competitors on the market.
• Value for money refers to establishing a selling price that reflects the customer perception of your product or service. For instance, luxury goods are perceived as valuable and rare, which allows sellers to have higher selling prices without compromising value for money rates. Ultimately, your goal is to sell enough items to ensure you have a profitable business, not to have the highest prices on the market.
• The industry often regulates prices and has its own regulations and standards. To be profitable and have a feasible and sustainable business, ensure your prices and costs align with the industry reference points.
• Variable factors, such as the product’s life cycle and economic factors, may impact your decisions on markup and may require markup adjustments. For example, currency fluctuations and inflation may require markup adjustments to remain profitable. Demand may vary with season, which means you may want to adjust prices accordingly (e.g., a higher markup for bathing suits in summer).
• Sales strategy may also influence markup, as you may decide that a new product should have a higher price based on novelty or, on the contrary, a lower price to attract customers. Sales strategy also dictates discounts, promotions, bundle sales, and private sales, all of which affect prices and markup.

How to Calculate Cost Price from Selling Price and Markup?

It isn’t always possible to make a profit based on your desired markup and selling price. The market, competitors, and economic factors often dictate the selling price and markup. In this scenario, all you can do is manage costs to make sure your business remains profitable. To calculate cost from selling price and markup, use the following formula:

Cost = (Selling Price*100)/(Markup Percentage+100)

To follow the example above, if you sell a product for $12 and have a 20% markup, the maximum cost you need to achieve to be profitable is:

Cost = ($12*100)/(20+100)=$10

How About Margin? What Is the Difference Between Margin and Markup?

Both margin and markup refer to profitability, and it may get confusing. Profit margin, or simply margin, refers to how much of the selling price is profit. Markup refers to how much you add to the cost to arrive at the selling price. Understanding the difference helps you avoid underpricing the goods you are selling, adopt the right pricing strategy, remain competitive in the market, and generate accurate financial reports. Here are the differences between margin and markup at a glance:

Markup vs. Margin Calculation Example

Let’s say you make an item for $10 and know that a markup of 60% ($6 per item) will keep your business profitable and competitive. In this scenario, the selling price will be

Selling Price = (Cost*(Markup Percentage+100))/100 = ($10*(60+100))/100=$16

However, if the industry standard margin is 60%, the selling price needs to be:

Selling Price = (100*Cost)/(100-Margin)=$25

Markup by Specific Industries

Some shops and service providers display their markup range on the front door. They may vary from 30% at your local grocery store to 500% at the museum’s gift shop and a hotel’s luxury boutique. Although there is no markup standard per industry or product type, competition creates a balance in the market. For example, two similar shops located next to each other often have the same range of prices; otherwise, they won’t be competitive and profitable. Nevertheless, you should expect high markups at certain product types, such as:

• Entertainment services and associated products (e.g., you pay more for popcorn outside the movie theater than at a regular store)
• Luxury items
• Drinks in restaurants
• Bottled water where you need it the most
• Bakery products

There are also a few goods categories with unusually low markups, and they are:

• Video game hardware, such as consoles, is used because the strategy is to attract new customers.
• Generic household goods, because the competition is high
• Cell phones, because telecom companies make money from selling services, not hardware
• Staple grocery goods, because the shops make money from the indulgence items (e.g., chocolate, wine, etc.)

Conclusion

As you can see, understanding the concept of markup and the strategies behind pricing various goods helps you achieve profitability, become and remain competitive, and price your goods accurately. Follow the markup formulas we’ve provided or use a dedicated markup calculator to start your business and keep it on track.