Pricing & Profit formula
Markup Formula
Calculate how much selling price exceeds cost, expressed as a percentage of cost.
The equation
How the formula works
Formula
Markup (%) = (Selling price − Cost) ÷ Cost × 100 Selling price = Cost × (1 + Markup ÷ 100)
What each term means
- Cost
- The amount paid to produce, purchase, or deliver the item or service.
- Selling price
- The amount charged to the customer before any deductions not included in the figures.
- Markup
- Profit as a percentage of cost.
How to calculate it
- 1
Subtract cost from selling price to find gross profit.
- 2
Divide gross profit by cost.
- 3
Multiply by 100 to express markup as a percentage.
How to interpret the result
A 25% markup means the selling price is 25% above cost; it does not mean the sale has a 25% margin.
Markup is useful for setting a price from cost, but the resulting margin should still be checked against the business's other expenses.
Markup versus margin
Markup uses cost as its denominator; margin uses selling price. A 25% markup on $80 creates a $100 price and a 20% margin.
Assumptions and limitations
- Cost is greater than zero.
- Cost and selling price refer to the same unit or scope.
- The cost basis is defined consistently across products or periods.
Common mistakes
- Using markup and margin interchangeably.
- Applying a target margin percentage directly as a markup.
- Leaving freight, labor, or transaction costs out of the cost basis without documenting that choice.
Frequently asked questions
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