What markup is and how to use it
Markup is what you add to the cost of an item to reach its selling price, written as a percentage of the cost. If an item costs 200 and you add 70, the markup is 70 ÷ 200 = 35%.
Setting prices this way is called cost-plus pricing. Work forward with price = cost × (1 + markup): a cost of 200 with a 35% markup sells for 200 × 1.35 = 270, and the profit is 70. Work backward with cost = price ÷ (1 + markup) to see what a price allows you to pay.
The cost has to hold everything that goes into one item: materials, packaging, delivery and payment fees. A markup says nothing about whether the profit covers rent, wages and other overheads, so treat it as a starting point and check it against your own accounts.
Markups stack by multiplying
Each step in a supply chain adds its own markup to the price it paid, so the markups multiply instead of adding. A maker whose cost is 40 adds 50% and sells to a shop at 60. The shop adds 100% and sells at 120. Measured against the maker's cost of 40, the final price is a 200% markup, not 150%.
The same idea works for several percentages in a row: (1 + 0.5) × (1 + 1.0) − 1 = 2.0, or 200%. The calculator finds the markup between any two prices when you enter the first as the cost and the last as the price.
Markup is not margin
A 25% markup on a cost of 80 gives a price of 100 and a profit of 20. That profit is 25% of the cost but only 20% of the price, so the margin is 20%. The conversion is margin = markup ÷ (1 + markup). Here are some markups and the margins they give:
- 10% markup: 9.09% margin.
- 25% markup: 20% margin.
- 50% markup: 33.33% margin.
- 100% markup: 50% margin. Doubling the cost halves the profit share.
- 200% markup: 66.67% margin.
- 300% markup: 75% margin.
To reach a particular margin the markup has to be higher than the margin: a 40% margin needs a 66.67% markup. The margin calculator starts from the margin you want and shows the markup that goes with it.
Markup above 100% and below zero
A margin can never reach 100%, but a markup has no top. A markup of 100% doubles the cost and 300% multiplies it by four, which is common for items with a low cost and a high price.
A markup below zero means selling for less than the cost. A cost of 100 with a markup of −20% sells for 80, a loss of 20 on every sale, and a margin of −25%. The calculator shows the loss and the negative percentages.