How to calculate markup
Learn how to calculate markup with a simple formula, worked examples, and how markup differs from margin.
Published Thursday 23 July 2026
Table of contents
How to calculate markup
Key takeaways
- Markup is the amount you add to the cost of a product to set its selling price, shown as a percentage of that cost.
- You calculate markup with a simple formula: subtract the cost price from the selling price, divide by the cost price, then multiply by 100.
- Markup and margin measure profit differently, so the markup percentage on an item is always higher than its margin percentage.
- Your ideal markup depends on your costs, overhead, competition, and the profit you want to make.
What is markup?
How to calculate sales price with markup
Markup is the amount you add to what a product costs you so you can sell it at a profit. It's usually shown as a percentage of the cost price, which is your cost of goods sold (COGS), the direct cost of making or buying the item.
Here's the markup formula written as text:
Markup % = ((selling price − cost price) / cost price) × 100
The cost price is what you pay to produce or buy the product. To dig deeper into that cost base, see how you track your cost of goods sold and how it feeds into your gross profit.
How to calculate markup
Working out your markup takes just a few steps once you know your cost price and selling price. Follow this order to get the markup percentage on any product.
- Find your cost price, the total it costs you to make or buy the item.
- Note the selling price you charge the customer.
- Subtract the cost price from the selling price to get your profit per item.
- Divide that profit by the cost price.
- Multiply the result by 100 to get the markup percentage.
Say a sofa costs you $1000 and you sell it for $1350. The calculation is ($1350 − $1000) / $1000 × 100 = 35%, so your markup is 35%.
How to use markup to set a selling price
You can also work the formula the other way to set a price from a target markup. This helps you price new products consistently across your range.
The formula is: selling price = cost price + (cost price × markup %). For example, a sofa that costs you $1000 with a 35% markup sells for $1000 + ($1000 × 0.35) = $1350.
Markup vs margin
Markup and margin both measure profit, but they use different starting points, so it's easy to mix them up. The difference matters when you're setting prices and comparing profitability.
Markup is based on your cost price, while margin is based on your selling price. Because the selling price is the larger number, the markup percentage on an item is always higher than its margin percentage. To see the two side by side, read our guide on margin versus markup, and learn how to calculate margin if you want to price from the selling-price angle instead.
What to consider when setting your markup
The right markup isn't just a number you pick at random. Weigh up these factors before you settle on a percentage, and keep an eye on your overall profit margin as you go.
- Cost of goods sold, the direct cost of making or buying each item
- Operating expenses and overhead, such as rent, wages, and utilities
- Competition, and what similar businesses charge for comparable products
- Perceived value, or what customers are willing to pay
- Desired profit, the return you need to keep the business healthy
Typical markup by industry
Markup varies a lot from one industry to the next, so there's no single figure that fits every business. Use general patterns as a starting point, then adjust for your own costs and market.
Retail markups tend to run higher because sellers cover the cost of stocking, displaying, and selling goods. Manufacturing and food businesses often work with lower markups, since they move larger volumes or face tighter cost pressures. Compare your numbers with businesses like yours, then set a markup that covers your costs and the profit you're aiming for.
Price with confidence using Xero
Getting your markup right is easier when you can see your true costs and profit in one place. Xero helps bring your numbers together so you can price with more confidence and see what's working, and you can try it free for 30 days when you get one month free.
FAQs on markup
Here are answers to some frequently asked questions about markup to help you price your products.
How do you calculate markup?
Subtract the cost price from the selling price, divide the result by the cost price, then multiply by 100. That gives you the markup as a percentage of your cost.
What is the difference between markup and margin?
Markup is calculated on the cost price, while margin is calculated on the selling price. For the same item, the markup percentage is always higher than the margin percentage.
What is a good markup percentage?
A good markup covers your costs and overhead while leaving the profit you want, so it depends on your industry and pricing goals. Compare your markup with similar businesses and adjust it to match your costs.
How do you calculate a selling price from markup?
Multiply the cost price by your markup percentage, then add that amount to the cost price. For a $1000 item with a 35% markup, the selling price is $1350.
Related terms
Learn more about markup
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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.