Markup

The amount added to cost to set a price, expressed as a percentage of cost.

DefinitionThe amount added to cost to set a price, expressed as a percentage of cost.

Markup is the difference between selling price and cost, expressed as a percentage of cost. It is how many businesses set prices: take what an item costs and add a fixed percentage. Margin expresses the same dollar difference as a percentage of price, so the two numbers are never equal.

How it is computed

Markup = (price − cost) / cost × 100. To convert: margin = markup / (1 + markup), and markup = margin / (1 − margin).

Example

An item costs $60 and sells for $80. The $20 difference is a markup of $20 / $60 = 33.3% and a margin of $20 / $80 = 25%. To reach a 40% margin on the same $60 cost, the markup must be 66.7%, giving a price of $100.

Where it goes wrong

Confusing the two. A team told to hit 30% margin that applies a 30% markup prices at $78 on a $60 cost and earns only 23.1%. Discounts taken after the markup also erode it unseen. The full comparison is markup vs margin.

Articles that use this term

Finance metrics and formulas

Gross profit margin: formula, worked example and what moves it

Gross profit margin is revenue minus cost of goods sold, divided by revenue. This page gives the formula, what US GAAP and the IRS put into cost of goods sold, a worked example on three product lines with the Excel formulas, the weighted-average identity that proves the total, and the three things that move the margin: price, cost and mix.

Sep 30, 20266 min read Finance metrics and formulas

Break-even analysis: the formula, a worked example, and a break-even chart in Excel

Break-even analysis finds the sales at which revenue covers every cost and profit is zero. This page gives the formula in units and in revenue, works one product through break-even, target profit and margin of safety, builds the Excel table and chart, tests what moves the point, and extends it to several products.

Oct 1, 20266 min read Finance metrics and formulas

Cost of goods sold (COGS): formula, what it includes and a worked example

Cost of goods sold is the direct cost of the goods a company sold in the period. This page gives the COGS formula, what US GAAP and the IRS put in and leave out, a worked year for a distributor with the Excel formulas, how FIFO, weighted average and LIFO change the figure, and what service companies call cost of revenue.

Oct 1, 20266 min read Finance metrics and formulas

Markup vs margin: the difference, the formulas and a conversion table

Markup divides profit by cost; margin divides the same profit by the selling price. This page gives both formulas, works them on five products, converts between them in a table and in Excel, and shows the pricing mistake that turns a 40% margin target into 28.6%.

Oct 1, 20265 min read