What is markup?
Learn what markup is, how to calculate it and why it matters for your business.
Published Monday 22 June 2026
Table of contents
Markup is entered as a decimal. For example, a 35% markup is shown as 0.35
Key takeaways
- Markup is the percentage you add to your cost price to set a selling price and cover expenses, tax and profit.
- The markup formula is (Selling Price - Cost Price) / Cost Price x 100, and it's different from margin, which is based on the selling price.
- Common markups vary widely by industry, from around 5% in grocery to 100% or more in food service and professional services.
- Setting the right markup means balancing your costs, competition, customer expectations and profit goals.
Whether you're pricing a product for the first time or reviewing your rates, understanding markup is essential. It's 1 of the most important numbers in your pricing strategy.
What is markup?
Markup is the amount you add to the cost of a product or service to arrive at your selling price. It's expressed as a percentage of the cost price, and it's how you make sure every sale covers your expenses and generates profit.
For example, if you buy stock for $50 and sell it for $75, your markup is 50%. That extra $25 goes toward covering overheads like rent, wages and marketing, with the remainder becoming your profit.
Getting your markup right matters because it directly affects your profitability. Set it too low and you won't cover your costs; set it too high and you risk losing customers to competitors.
How to calculate markup
Calculating markup is straightforward once you know the formula. You just need 2 numbers: your cost price and your selling price. You can also use Xero's free markup calculator to work it out instantly.
The markup formula is:
Markup % = (Selling Price - Cost Price) / Cost Price x 100
Here's a worked example. Say you run a retail shop in Brisbane and you buy a product for $80. You sell it for $120. Your markup is:
($120 - $80) / $80 x 100 = 50%
To work backwards from a desired markup, multiply your cost price by (1 + markup percentage as a decimal). If you want a 40% markup on an item that costs $60, the selling price would be $60 x 1.40 = $84.
Markup vs margin
Markup and margin are closely related, but they measure different things. Confusing the 2 is a common mistake that can lead to pricing errors and lower profits than expected.
Markup is the percentage added to the cost price. Margin (also called gross profit margin) is the percentage of the selling price that's profit. They use different base figures, so the same transaction produces different percentages.
Take a product that costs $60 and sells for $100:
- Markup: ($100 - $60) / $60 x 100 = 66.7%
- Margin: ($100 - $60) / $100 x 100 = 40%
Markup will always be a higher number than margin for the same transaction. When you're setting prices, use markup. When you're analysing how much profit each sale generates as a share of revenue, use margin.
Common markup percentages by industry
Markup percentages vary significantly depending on your industry, the type of product or service you sell, and your operating costs. Here are some common ranges Australian small businesses use as a guide:
- Retail (clothing, homewares, gifts): 50% to 100%
- Food and grocery: 5% to 25%
- Restaurants and cafes: 60% to 100% or more on food; higher on beverages
- Professional services (consulting, design, marketing): 50% to 150%
- Construction and trades: 10% to 30% on materials; higher on labour
These are general ranges, not fixed rules. Your actual markup should reflect your specific costs, location and competitive landscape. A boutique retailer in Sydney will likely need a different markup than an online reseller with lower overheads.
How to set the right markup for your business
Choosing the right markup isn't just about picking an industry average. You need to consider several factors that are specific to your business and market.
Start by understanding your total costs. This includes not just the cost of goods, but also overheads like rent, utilities, insurance, wages and marketing. Your markup needs to cover all of these and still leave room for profit.
Research your competition. Find out what similar businesses charge for comparable products or services. If your prices are significantly higher, you'll need to justify the difference through quality, service or convenience. For practical tips on adjusting your rates, see this guide on how to increase profit.
Think about your customers' expectations. Price-sensitive markets may require a lower markup with higher volume, while niche or premium markets can support higher markups. Consider your profit goals as well; work backwards from the annual profit you want to achieve and calculate the markup needed to get there.
Review your markup regularly. Costs change, markets shift and customer preferences evolve. Understanding how to measure profitability helps you stay on track. Checking your pricing at least every quarter helps you stay competitive and profitable.
Simplify your pricing with Xero
Getting your markup right is only part of the picture. You also need clear visibility into your costs, revenue and profit margins to know whether your pricing strategy is actually working.
Xero's accounting software gives you real-time access to your financial data, so you can track costs, monitor cash flow and run reports that show exactly how your business is performing. With customisable invoicing and automated bank feeds, you spend less time on admin and more time making informed pricing decisions. Get one month free.
FAQs on markup
Here are answers to some of the most common questions about markup for small businesses.
What is the difference between markup and margin?
Markup is the percentage added to your cost price to set a selling price. Margin is the percentage of the selling price that represents profit, so it uses the selling price as the base rather than the cost.
How do you calculate markup percentage?
Subtract the cost price from the selling price, divide by the cost price, then multiply by 100. For example, an item costing $50 and selling for $75 has a 50% markup.
What is a good markup percentage?
It depends on your industry and costs. Retail businesses commonly mark up between 50% and 100%, while grocery and food retail tends to sit between 5% and 25%.
What is the difference between markup and markdown?
Markup is the amount added to a cost price to reach a selling price. Markdown is a reduction from the original selling price, typically used during sales or to clear slow-moving stock.
Handy resources
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.