How to calculate markup

Published Thursday 23 July 2026

Table of contents

• What is markup?
• How to calculate markup
• How to use markup to set your selling price
• Markup vs margin
• What is a good markup percentage?
• Factors that affect your markup
• Common markup mistakes to avoid
• Manage your pricing with Xero
• FAQs on markup calculations

Key takeaways

• Markup is the percentage you add to your cost price to arrive at a selling price, and you calculate it by dividing profit by cost and multiplying by 100.
• Markup and margin are not the same thing. Markup is based on cost, while margin is based on the selling price, so the percentages will always differ for the same transaction.
• The right markup depends on your industry, operating costs, competition, and the value your customers place on what you sell.
• Tracking your costs and pricing in accounting software like Xero helps you spot when your markup needs adjusting before it cuts into your profit.

What is markup?

Markup is the percentage difference between what a product or service costs you and the price you charge your customers. It's one of the simplest ways to make sure every sale covers your costs and leaves room for profit.

When you know your markup, you can set prices with confidence. A clear markup means you're not guessing at what to charge; you're basing your price on real numbers. It also makes it easier to compare pricing across products, adjust for rising supplier costs, and stay competitive in your market.

You can also use Xero's free markup calculator to check your figures quickly. The standard markup formula is:

Markup percentage = ((selling price − cost price) / cost price) x 100

In other words, you take the difference between what you sell something for and what it cost you, divide that by the cost, and multiply by 100 to get a percentage.

How to calculate markup

Calculating markup takes just a few steps once you know your cost price and your selling price. Here's how to work it out.

1. Find your cost price. This is the total amount you pay to produce or purchase the item. Include direct costs like materials, manufacturing, or wholesale purchase price.
2. Find your selling price. This is the price your customer pays for the product or service.
3. Subtract the cost price from the selling price. The result is your gross profit on that item.
4. Divide the gross profit by the cost price. This gives you the markup as a decimal.
5. Multiply by 100. This converts the decimal into a percentage.

Here's a worked example. Say you buy a sofa for $500 and sell it for $800.

• Gross profit: $800 − $500 = $300
• Markup: ($300 / $500) x 100 = 60%

That means you've applied a 60% markup to the sofa.

Here's a second example using a service. A landscaper quotes a garden redesign at $2,200. The cost of materials, labour, and transport comes to $1,400.

• Gross profit: $2,200 − $1,400 = $800
• Markup: ($800 / $1,400) x 100 = 57.1%

The landscaper's markup on that job is roughly 57%.

How to use markup to set your selling price

If you already know your cost and the markup percentage you want, you can reverse the formula to find the right selling price. This is useful when you're pricing new products or updating a price list.

The formula is:

Selling price = cost price x (1 + markup percentage / 100)

For example, if a product costs you $120 and you want a 75% markup:

• Selling price: $120 x (1 + 75 / 100) = $120 x 1.75 = $210

You'd set the selling price at $210.

Here's another example. A bakery's cost per cake is $18 and the owner wants a 120% markup:

• Selling price: $18 x (1 + 120 / 100) = $18 x 2.2 = $39.60

The selling price for each cake would be $39.60.

Markup vs margin

Markup and margin both measure profit, but they use different base numbers. This is one of the most common points of confusion in small business pricing, so it's worth understanding the distinction clearly.

Markup is calculated as a percentage of your cost price. Margin (also called gross profit margin) is calculated as a percentage of your selling price. Because the selling price is always larger than the cost price, the margin percentage will always be lower than the markup percentage for the same transaction.

Here's how they compare using the same numbers. You buy an item for $200 and sell it for $350. Your gross profit is $150.

• Markup: ($150 / $200) x 100 = 75%
• Margin: ($150 / $350) x 100 = 42.9%

Same sale, same dollar profit, but the percentages are quite different.

If you need to convert between the 2, use these formulas:

• Margin to markup: markup % = (margin % / (100 − margin %)) x 100
• Markup to margin: margin % = (markup % / (100 + markup %)) x 100

Getting these mixed up can lead to underpricing. For a deeper look at how margins affect your bottom line, see how to calculate your profit margin. If you set prices based on a 50% figure thinking it's markup when it's actually margin, you'll end up with a lower profit than expected.

What is a good markup percentage?

There's no single "correct" markup. The right percentage depends on your industry, your costs, and what the market will bear. That said, some common ranges can give you a starting point.

• Retail (clothing, accessories): 50% to 100%
• Food and beverage (restaurants, cafes): 200% to 400% on individual menu items
• Manufacturing: 20% to 50%
• Professional services (consulting, design): 50% to 150%
• Construction and trades: 10% to 30%
• Grocery and supermarket: 5% to 15%

These are broad ranges. Your actual markup should reflect the full cost of doing business in your specific situation, including overheads, not just the cost of goods.

Factors that affect your markup

Your markup isn't something you set once and forget. Several factors, from your cost of goods sold to customer expectations, influence what a sustainable markup looks like for your business.

• Cost of goods sold (COGS): if your supplier prices rise, your markup needs to increase to maintain the same dollar profit. Regularly reviewing your COGS helps you stay ahead of cost creep
• Operating expenses: rent, wages, insurance, and utilities all need to be covered by your pricing. A markup that only covers the product cost won't keep the business running
• Desired profit: your markup should leave enough after all expenses to give you the return you're aiming for. Work backwards from your profit goal to find the minimum markup you need. You can measure your profitability to check whether your current markup is delivering
• Competition: what similar businesses charge affects what customers expect to pay. If your markup pushes prices well above the market, you may need to find other ways to reduce costs or add value
• Perceived value: customers will pay more for products or services they see as higher quality, more convenient, or more specialised. Strong branding and customer experience can support a higher markup

Common markup mistakes to avoid

Even with a solid formula, pricing mistakes can quietly eat into your profit. Here are 5 of the most common ones to watch out for.

• Confusing markup with margin: as covered earlier, these are different calculations. Using a margin figure as if it were markup will result in lower prices and less profit than you intended
• Forgetting indirect costs: if you only mark up based on the purchase price of goods, you're not covering overheads like rent, software, packaging, or shipping. Your markup needs to account for the full cost of delivering the product or service
• Using the same markup on everything: different products and services carry different cost structures and customer expectations. A flat markup across the board can mean some items are overpriced while others barely break even
• Never reviewing your markup: costs change, markets shift, and customer expectations evolve. If you set your markup once and leave it, you could be losing money without realising it. Review your pricing at least quarterly
• Ignoring what competitors charge: your markup doesn't exist in isolation. If your prices are significantly higher or lower than similar offerings, it's worth understanding why and adjusting accordingly

Manage your pricing with Xero

Getting your markup right is only half the job. You also need a clear picture of your costs, revenue, and profit margins so you can adjust pricing when things change. Xero's accounting software gives you up-to-date visibility into your finances, so you can track costs, review profit across your invoices, and spot when a product or service isn't pulling its weight. Get one month free

FAQs on markup calculations

Here are answers to some frequently asked questions about markup calculations.

What is the markup formula?

The markup formula is ((selling price − cost price) / cost price) x 100. This gives you the percentage by which your selling price exceeds your cost.

What is the difference between markup and margin?

Markup measures profit as a percentage of cost, while margin measures profit as a percentage of the selling price. For a $100 cost and $150 selling price, the markup is 50% but the margin is 33.3%.

What is a good markup percentage for retail?

Most retail businesses use a markup between 50% and 100%, commonly known as keystone pricing at the 100% mark. Your ideal retail markup depends on your product category, competition, and operating costs.

Should I include overhead costs when calculating markup?

Your markup formula uses the direct cost of goods, but your target markup percentage should be high enough to cover overheads like rent, wages, and utilities. Setting markup based only on product cost without factoring in overheads can leave you running at a loss.

How do I convert markup to margin?

Use the formula: margin % = (markup % / (100 + markup %)) x 100. For example, a 50% markup converts to a 33.3% margin: (50 / 150) x 100 = 33.3%.