How to calculate markup

Example shows $1,000 times 0.35, plus $1,000, equals $1,350 selling price.

Markup % = (selling price − cost) ÷ cost × 100. For example, if a sofa costs €1,000 to make and you sell it for €1,350, your markup is (1,350 − 1,000) ÷ 1,000 × 100 = 35%.

How to set a selling price using markup

To find a selling price from a known markup, use: selling price = cost + (cost × markup %). If you have a €1,000 sofa and want a 35% markup, the selling price is €1,000 + (€1,000 × 0.35) = €1,350. To work back to the cost from a known selling price and markup, divide the selling price by (1 + markup %). When setting your markup, consider your marginal cost as the pricing floor.

Markup vs margin

Markup is profit as a percentage of cost, while gross profit margin is profit as a percentage of the selling price. A 50% markup gives you a 33% gross margin. When analysing profitability, profit margin shows how much of each euro in sales you keep, whereas markup shows how much you've added to each euro in cost.

What affects the markup you choose

Your markup depends on several factors that influence your pricing strategy.

Cost of goods sold and overheads
Target profit
Competition
Perceived value
Customer demand

Typical markups vary by industry. Retailers often use lower markups than service providers, and luxury goods may carry higher markups than commodities.

Common markup mistakes

Small errors in markup calculations can quietly erode your profits. Keep an eye out for these common mistakes.

Confusing markup with margin
Ignoring overheads when setting the markup
Treating VAT as part of the markup (in Ireland, VAT at 23% is added on top of the marked-up net price, not included in the markup calculation)
Letting discounts quietly erode the markup

To avoid these pitfalls, regularly measure profitability and review your pricing.

Price with confidence with Xero

Xero helps you track costs, monitor margins, and set the right markup for your products and services. With real-time financial data at your fingertips, you can price with confidence, and you can get one month free to see how it works for your business.

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 expressed as a percentage of cost, while margin is profit expressed as a percentage of selling price. The same euro amount of profit produces a higher markup figure than margin figure.

What is a good markup percentage?

A good markup depends on your industry, costs, and competitive position. Markups vary widely, so compare yours with similar businesses in your sector rather than aiming for a single figure.

How do you work out the selling price from a markup?

Multiply your cost by the markup percentage and add the result to the cost. For example, a €100 item with a 40% markup sells for €140.

Can markup be negative?

Yes, if you sell below cost. A negative markup means you're making a loss on each sale, which may happen during clearance or promotional periods.

Does markup include VAT in Ireland?

No, markup is calculated on the net (ex-VAT) cost. VAT at 23% is added to the final selling price separately.

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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.

How to calculate markup

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Key takeaways

What is markup