How to calculate markup

Published Monday 17 August 2026

Table of contents

• What is markup?
• How to calculate markup
• Using markup to set your selling price
• Markup vs margin
• Typical markup percentages by industry
• What to consider when setting your markup
• Set profitable prices with Xero
• FAQs on markup
• Related terms
• Learn more about markup

Key takeaways

• Markup is the amount added to the cost of a product or service to set its selling price, expressed as a percentage of the cost using the formula: markup % = (selling price − cost) ÷ cost × 100.
• To calculate markup, subtract the cost from the selling price, divide by the cost, then multiply by 100 to get a percentage.
• Markup and margin are different: markup is a percentage of cost, while margin is a percentage of selling price, so markup is always the higher number for the same transaction.
• When setting your markup, factor in your full cost structure including overhead expenses like rent, wages, and marketing, not just the purchase cost of goods.

What is markup?

Markup is the amount added to the cost of a product or service to set its selling price, expressed as a percentage of the cost. It represents the difference between what you pay for something and what you charge your customers.

The markup formula is:

Markup % = (selling price − cost) ÷ cost × 100

How to calculate markup

Calculating your markup percentage helps you understand how much profit you make on each sale relative to your cost. Follow these steps to work out the markup on any product or service.

1. Identify the cost price of your product or service.
2. Identify the selling price you charge customers.
3. Subtract the cost from the selling price to find the profit amount.
4. Divide the profit amount by the cost.
5. Multiply the result by 100 to express it as a percentage.

For example, if you buy a sofa for $1,000 and sell it for $1,350, your calculation would be: ($1,350 − $1,000) ÷ $1,000 × 100 = 35% markup.

Using markup to set your selling price

Once you know your desired markup percentage, you can use it to calculate the selling price for any product or service. This approach helps you price consistently across your inventory.

The formula to set a selling price from markup is:

Selling price = cost × (1 + markup %)

For example, if a sofa costs you $1,000 and you want a 35% markup, your selling price would be: $1,000 × 1.35 = $1,350.

Markup vs margin

While markup and margin both measure profitability, they use different reference points and produce different percentages. Understanding the distinction helps you price accurately and communicate clearly with suppliers, accountants, and partners. You can learn more about how profit margin works in a separate guide.

Markup is a percentage of the cost, while margin (profit margin) is a percentage of the selling price. Using the same numbers: if you buy a product for $60 and sell it for $100, your profit is $40. Your markup is $40 ÷ $60 × 100 = 66.7%. Your margin is $40 ÷ $100 × 100 = 40%. Markup is always the higher number when comparing the same transaction.

Here is a quick reference for converting between markup and margin:

• 25% markup = 20% margin
• 50% markup = 33.3% margin
• 75% markup = 42.9% margin
• 100% markup = 50% margin

Typical markup percentages by industry

Markup percentages vary widely depending on the industry, competition, and operating costs. These general ranges can serve as starting points, but your ideal markup will depend on your specific market and business model. Understanding gross profit margin can also help you evaluate these benchmarks.

• Retail clothing and accessories: 50% to 100%
• Food and beverage: 60% to 75%
• Grocery and convenience: 5% to 25%
• Electronics: 10% to 50%
• Professional services: 50% to 150%

What to consider when setting your markup

Setting the right markup requires more than applying a standard percentage. Consider these factors to ensure your prices cover costs, stay competitive, and reflect the value you provide.

• Your full cost structure: Include overhead expenses like rent, wages, utilities, and marketing when calculating your cost of sales, not just the purchase price of goods.
• Competitor pricing: Research what similar businesses charge to ensure your prices remain competitive in your market.
• Perceived value: Customers may pay more for products or services they see as higher quality, more convenient, or better supported. Explore ways to increase profits by enhancing value.

Set profitable prices with Xero

Setting the right markup gives you confidence that every sale contributes to your bottom line. With clear visibility into your costs and margins, you can price strategically and grow your revenue over time. Try Xero accounting software and get one month free.

FAQs on markup

Here are answers to common questions about calculating and applying markup in your business.

How is markup calculated?

Markup is calculated by subtracting the cost from the selling price, dividing by the cost, then multiplying by 100. The formula is: markup % = (selling price − cost) ÷ cost × 100.

What is the difference between markup and margin?

Markup is a percentage of the cost, while margin is a percentage of the selling price. For the same sale, markup will always be the higher percentage because cost is a smaller number than selling price.

What is a good markup percentage?

A good markup depends on your industry and operating costs. Markups range from 5–25% in grocery to 50–150% in professional services, so research your specific market for appropriate benchmarks.

Should I include overhead costs in my markup?

Yes, your markup should account for all business costs, including overhead like rent, wages, and marketing. Covering only the purchase cost of goods may leave you unable to pay your operating expenses.

Related terms

• Margin vs markup
• Gross profit
• Profit margin

Learn more about markup

• How to measure profitability
• Cost of goods sold explained
• How to calculate marginal cost