Definition
Markup is the amount added to a product's cost to reach its selling price, usually shown as a percentage of the cost. A 50 percent markup on a $8 cost gives a $12 price.
The formulas
A worked example
A phone-accessory stall buys a charging cable for $8 and wants a 50 percent markup. Price = 8 x 1.50 = $12. The profit is $4. Against the cost of $8, that is 50 percent markup. Against the price of $12, it is 33.3 percent gross margin.
| Markup on cost | Resulting margin |
|---|---|
| 25% | 20% |
| 50% | 33.3% |
| 100% | 50% |
Markup is always bigger than margin for the same product. Doubling the cost, a 100 percent markup, only gives a 50 percent margin.
Common mistakes
- Mixing it up with margin. Saying 'I make 30 percent' without saying on what leads to under-pricing. Adding 30 percent to cost gives a 23 percent margin.
- One markup for everything. A flat percentage ignores how fast each product sells and what competitors charge.
- Marking up the wrong cost. Use the full landed cost, including delivery, not only the invoice price.
- Forgetting sales tax. Add it after your price, or build it in on purpose, but never forget it.
Try numbers in the markup and margin calculator, or read how to price products.
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