Markup
Markup is the percentage you add to an item's cost to set its selling price. Here's how it works.
Published Thursday 23 July 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 an item's cost price to set its selling price.
- To find markup, subtract the cost price from the selling price, divide by the cost price, then multiply by 100.
- Markup is based on cost price, while margin is based on selling price, so markup is always the higher percentage.
- A good markup varies by industry, so there's no single number that works for every business.
What is markup?
Markup is the percentage you add to an item's cost price to set its selling price. It covers your costs and builds in the profit you want to make on each sale.
Many small businesses set prices by working out what it costs to buy or produce an item, then adding a markup on top. That cost usually includes your cost of sales along with any variable costs tied to the product.
How to calculate markup
To calculate markup, you compare the selling price to the cost price and turn the difference into a percentage. Here's the formula and a worked example you can follow.
Markup % = ((Selling price − Cost price) / Cost price) × 100
- Start with the cost price. Say a product costs you $60.
- Note the selling price. You sell it for $100.
- Subtract the cost from the selling price: $100 − $60 = $40.
- Divide that by the cost price: $40 / $60 = 0.6667.
- Multiply by 100 to get the markup: 66.67%.
Markup vs margin
Markup and margin both measure profit on a sale, but they use different starting points. You can dig deeper into the two in this guide on margin vs markup.
Markup is based on the cost price, while margin is based on the selling price. For the same item, markup is always the higher percentage. Using the $60 cost and $100 price above, the markup is 66.67%, but the margin is 40% because you divide the same $40 profit by the $100 selling price instead.
Markup vs gross profit
Markup and gross profit are related, but they aren't the same thing. It helps to know which one you're looking at when you price a product or review your numbers.
Gross profit is a dollar amount: your revenue minus the cost of goods sold. Markup is a percentage you add to cost to set a price. So markup isn't gross profit itself, it's the pricing tool that helps produce your gross profit.
What is a good markup?
There's no single markup that's right for every business. The best figure depends on your industry, your costs, and what your customers will pay.
Retail, manufacturing, and services all tend to sit at different markup levels, so it's worth comparing yourself to businesses like yours. Set a markup high enough to cover costs and leave healthy profit, but low enough to stay competitive, and revisit it as your costs change. You can track how your pricing affects the bottom line when you measure profitability over time.
Set profitable prices with Xero
Getting your markup right is easier when you can see your costs and profit clearly in one place. Xero brings your numbers together so you can price with confidence and check how each product performs. Try it and get one month free.
FAQs on markup
Here are answers to frequently asked questions about markup.
What is the markup formula?
The markup formula is ((selling price − cost price) / cost price) × 100. It tells you the percentage you've added to an item's cost to reach its selling price.
Is markup the same as margin?
No, markup is based on the cost price and margin is based on the selling price. For the same item, markup is always the higher percentage.
What is a good markup percentage?
A good markup percentage depends on your industry, costs, and customers, so there's no universal number. Aim for a figure that covers your costs and profit while keeping your prices competitive.
How do you convert markup to margin?
Divide the profit by the selling price instead of the cost price, then multiply by 100. A 66.67% markup on a $60 item sold for $100 becomes a 40% margin.
Related terms
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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.