How to calculate markup
Learn the markup formula and how to set profitable selling prices.
Published Thursday 6 August 2026
Table of contents
How to calculate markup
Key takeaways
- Markup is the percentage you add to your cost price to reach a selling price, worked out as (selling price − cost) ÷ cost × 100.
- Markup is based on cost while margin is based on the selling price, so a 50% markup is only a 33.3% margin.
- The right markup depends on your industry, your cost structure, your competitors, and what your customers expect to pay.
- Tracking your costs and revenue regularly helps you set accurate markups and protect your profit.
What is markup?
How to calculate sales price with markup
Markup is the percentage you add to the cost of a product or service to set its selling price. It is the difference between what you pay and what your customer pays, shown as a percentage of your cost.
Think of it as the gap between your buy price and your sell price. If you buy stock for HK$100 and sell it for HK$150, you have added HK$50 on top of your cost. That HK$50 is your markup in dollar terms, and turning it into a percentage makes it easier to apply across your whole product range.
Retailers, restaurants, consultants, and service providers all use markup so that each sale helps cover overheads and generate profit.
How to calculate markup
You calculate markup by comparing your gross profit to your cost, then expressing it as a percentage. The formula is:
Markup % = (selling price − cost) ÷ cost × 100
Working out your markup percentage takes three steps.
Identify your cost price
Start with what you paid for the product, or what it costs to deliver your service. Include all direct costs, such as materials, manufacturing, and freight.
Subtract cost from selling price
Take your cost away from your selling price. This gives you the gross profit on the sale in dollar terms.
Divide by cost and multiply by 100
Divide that gross profit by the cost price, then multiply by 100 to turn it into a percentage. The result is your markup.
Markup calculation example
A worked example makes the formula easier to follow. Say you make sofas for HK$1,000 each and sell them for HK$1,350, and you want to know your markup.
(HK$1,350 − HK$1,000) ÷ HK$1,000 × 100 = 35% markup
So you have added 35% to your cost to reach your selling price.
How to calculate a selling price from markup
When you already have a target markup in mind, you can work the other way round to set your selling price. Convert the markup percentage to a decimal first, so a 35% markup becomes 0.35, then use this formula:
Selling price = cost × (1 + markup)
For a sofa that costs HK$1,000 with a 35% markup, that is HK$1,000 × 1.35 = HK$1,350. Setting prices this way keeps your figures consistent, and recording them in your financial statements helps you check that every product still earns the profit you planned. Learn more in our guide to financial statements.
Markup vs margin
Markup and margin are related but not the same, and confusing the two can lead to underpricing. Markup is based on your cost, while margin is based on your selling price, so the same sale produces two different percentages.
Take a product that costs HK$60 and sells for HK$100. Your markup is (HK$100 − HK$60) ÷ HK$60 × 100 = 66.67%, but your margin is (HK$100 − HK$60) ÷ HK$100 × 100 = 40%. For the same transaction, markup is always the higher figure. If you aim for a 40% margin but apply a 40% markup by mistake, your real margin drops to about 28.6%, and across hundreds of sales that gap adds up. Use markup when you set prices from your cost, and use profit margin when you analyse how much of your revenue you keep.
What is a good markup percentage?
There is no single right answer. A good markup depends on your industry, your costs, and what your customers will pay. As a rough guide, these patterns are common:
- Grocery and everyday retail often work on thin markups because they rely on high volume
- Food service and hospitality tend to price higher to cover waste, labour, and short service windows
- Manufacturing markups are often lower where volumes are high
- Professional and specialist services can command much higher markups
Rather than copying a benchmark, check that your markup covers your costs and leaves the profit you need. Tracking your profitability ratios over time shows whether your pricing is working.
Factors to consider when setting your markup
Setting the right markup means balancing several things at once, not just applying a fixed number. Keep these factors in mind:
- Your cost of goods sold and overheads, so your price covers every cost of getting the product ready to sell
- Your desired profit, so each sale contributes what your business needs
- Competitor pricing, which can limit how much you can add
- Perceived value, since premium positioning supports higher markups than budget positioning
- Regular reviews, so your markup keeps pace with changing costs and demand
It also helps to understand your marginal cost, the cost of producing one more unit, because it tells you whether a sale at your chosen price still adds to your profit.
Price with confidence using Xero
Calculating markup is easier when your cost and revenue data is accurate and up to date. Xero gives you real-time financial reports, so you can see your costs and sales clearly and spot when it is time to adjust your prices. Get one month free.
FAQs on markup
Here are answers to common questions about calculating and applying markup.
What is the difference between markup and margin?
Markup is profit as a percentage of your cost, while margin is profit as a percentage of your selling price. The same sale gives a higher markup figure than margin figure.
What is a good markup percentage?
There is no universal figure, because it depends on your industry, costs, and customer demand. Aim for a markup that covers all your costs and still leaves the profit your business needs.
How do you calculate a selling price from markup?
Multiply your cost by one plus the markup expressed as a decimal. For example, a HK$1,000 cost with a 35% markup gives HK$1,000 × 1.35 = HK$1,350.
Can markup be more than 100%?
Yes. A markup above 100% simply means your selling price is more than double your cost, which is common for specialist, luxury, or low-volume products.
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.