Markup
Markup is the amount you add to cost to set your selling price. Learn how it works and how to calculate it.
Published Thursday 6 August 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 the cost of a product or service to set its selling price.
- To find markup percentage, divide the profit (selling price minus cost) by the cost price, then multiply by 100.
- Markup and margin measure the same profit differently: markup is a percentage of cost, while margin is a percentage of the selling price.
- The right markup covers your costs and overheads, matches what your market will pay and leaves enough profit to keep trading.
What is markup?
Markup is what you add to the cost of a product or service to set a price that makes money. It is usually shown as a percentage of the cost.
Many businesses set prices by working out what it costs to provide their goods or services, then marking that amount up by a percentage. Some accounting tools ask you to enter markup as a decimal, so a 35% markup is written as 0.35.
Why markup matters for your business
Your markup decides how much you make on each sale, and it feeds straight into your gross profit. Getting it right keeps your pricing sustainable while staying attractive to customers.
Set the markup too low and you may not have enough cash to cover costs and keep the business running. Set it too high and customers may look elsewhere. A considered markup helps you cover rent, wages and overheads while still turning a profit on what you sell.
How to calculate markup
Markup percentage is the profit on a sale expressed as a percentage of what the item cost you. The formula is: markup percentage = (selling price − cost price) ÷ cost price × 100. Follow these four steps.
- Work out your cost price, including the direct costs to make, buy or prepare the item, such as your cost of goods sold.
- Subtract the cost price from your selling price to find the profit on the sale.
- Divide that profit by the cost price.
- Multiply the result by 100 to get the markup percentage.
For example, if a product costs you HK$60 and you sell it for HK$100, your profit is HK$40. Divide HK$40 by HK$60 and multiply by 100, and your markup is 66.67%. To work the other way, apply a chosen markup to your cost: a 50% markup on a HK$60 item adds HK$30, giving a HK$90 selling price.
Markup vs margin
Markup and margin both describe the profit on a sale, but they use a different base, which is why they are easy to confuse. Markup is a percentage of the cost price, while margin is a percentage of the selling price.
Take the same product that costs HK$60 and sells for HK$100. The markup is 66.67% because you compare the HK$40 profit to the HK$60 cost. The profit margin is 40% because you compare the same HK$40 profit to the HK$100 selling price. For any product, the markup is always the larger of the two numbers, so mixing them up can lead you to underprice and lose profit.
Typical markups by industry
There is no single markup that suits every business. The right level depends on your costs, competition and how much customers are willing to pay.
Markup percentages vary widely by industry, from a few percent in some sectors to much higher figures in others, so there is no standard markup that applies to every product, according to the Corporate Finance Institute. Everyday essentials with price-sensitive buyers tend to carry lower markups, while speciality or luxury items often support higher ones. Use your own sector as the benchmark rather than a general rule of thumb.
How to set the right markup
A workable markup balances profit with what your market will accept. Weigh up these factors before you settle on a number.
- Your full costs, including direct costs and overheads such as rent, wages and utilities
- The profit you need to keep the business running and growing
- What competitors charge for similar products or services
- How much your customers value the product and what they are willing to pay
- Room for discounts, promotions, returns and unsold stock
Review your markup whenever your costs or market change, so your prices keep pace. Tracking your numbers as you go helps you spot when a price no longer works. You can measure profitability regularly to check that each markup still delivers the profit you planned.
Price with confidence using Xero
Good pricing starts with knowing your true costs and watching how they change. Xero accounting software helps you track costs, keep an eye on gross profit and run reports that show whether your markups are working. See how it fits your business and get one month free.
FAQs on markup
These quick answers cover the questions small business owners ask most about markup.
How do you calculate markup percentage?
Subtract the cost price from the selling price to get the profit, divide that by the cost price, then multiply by 100. A HK$40 profit on a HK$60 cost is a 66.67% markup.
Is markup the same as profit margin?
No. Markup is the profit as a percentage of the cost price, while margin is the profit as a percentage of the selling price, so the two figures differ for the same sale.
What is a good markup?
A good markup covers your costs and overheads and leaves the profit you need, at a price your customers will accept. The right level depends on your industry and competition rather than a fixed number.
How do you work out a selling price from markup?
Multiply your cost price by the markup percentage and add it to the cost. A 50% markup on a HK$60 item adds HK$30, giving a HK$90 selling price.
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.