How to calculate markup

Learn the markup formula, work through examples, and see how markup differs from margin.

Published Monday 17 August 2026

Table of contents

The markup formula shows that sale price minus the cost of goods or services sold, divided by the cost of goods or services s

How to calculate markup

Key takeaways

Example shows $1,350 minus $1,000, divided by $1,000, times 100, equals 35 percent markup.
  • Markup is the amount you add to the cost of a product, shown as a percentage of that cost.
  • To calculate markup, subtract the cost from the selling price, divide by the cost, then multiply by 100.
  • Markup and margin measure the same profit against different bases, so a 35% markup is not the same as a 35% margin.
  • The right markup depends on your costs, your competitors, and what your customers will pay, so review it as those change.

What is markup?

To use markup to set prices, multiply the cost of goods or services sold by the markup, then add the cost of goods or service

How to calculate sales price with markup

Markup is what you add to the cost of a product or service to reach a selling price, expressed as a percentage of the cost. It is the difference between your buy price and your sell price, divided by your buy price, times 100.

Markup answers a practical question for any small business: how much do you add on top of what something costs you, so the sale covers your costs and leaves a profit.

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

The markup formula

The markup formula turns the gap between cost and selling price into a percentage you can compare across products. The formula is:

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

You can work it out in three steps:

  1. Subtract the cost from the selling price to find your profit.
  2. Divide that profit by the cost.
  3. Multiply by 100 to turn it into a percentage.

Example of a markup calculation

A worked example makes the formula easier to apply to your own products. Say you make sofas for RM1,000 and sell them for RM1,350, and you want to know your markup.

  • Profit: RM1,350 − RM1,000 = RM350
  • Divide by cost: RM350 ÷ RM1,000 = 0.35
  • Multiply by 100: 0.35 × 100 = 35% markup

Using markup to set your selling price

Many businesses decide on a markup first and use it to set prices, so the equation works the other way around. Multiply the cost by the markup percentage, then add the result to the cost.

Using the same sofa that costs RM1,000, with a markup of 35%:

  • Markup amount: RM1,000 × 0.35 = RM350
  • Selling price: RM1,000 + RM350 = RM1,350

Markup vs margin

Markup and margin both describe your profit, but they measure it against different figures, which is where many owners trip up. Markup is profit as a percentage of cost, while margin is profit as a percentage of the selling price.

Take the sofa again: the RM350 profit is a 35% markup on the RM1,000 cost, but the same RM350 is only about a 26% margin on the RM1,350 price. Because the selling price is always larger than the cost, the margin figure is always lower than the markup figure. As a rough guide:

  • A 20% markup is about a 17% margin
  • A 50% markup is about a 33% margin
  • A 100% markup is a 50% margin

Mixing up the two can quietly erode your profit, so it helps to keep an eye on your profit margin alongside your markup.

Typical markup by industry

There is no single markup that suits every business, because cost structures and buying habits differ by sector. These patterns are common:

  • Groceries and everyday retail often use lower markups, as customers compare prices closely
  • Cafes and restaurants tend to apply higher markups on individual items to cover waste and labour
  • Clothing and homeware frequently use keystone pricing, roughly a 100% markup on cost
  • Professional services set markups on time and materials rather than on stock

How to choose the right markup percentage

Choosing a markup means balancing what you need to earn against what the market will bear. Weigh up these factors before you settle on a figure:

  • Your full costs, including the direct cost to make or buy the item
  • The profit you need after covering overhead such as rent and wages
  • What competitors charge for similar products
  • What your customers see as fair value
  • The norms for your industry and season

It helps to know your true cost per unit first, so it is worth learning how to work out your cost per unit before you apply a markup. Reviewing your profitability ratios can also show whether your chosen markup is doing its job.

Common markup mistakes to avoid

A few recurring errors can leave you underpriced without realising it. Watch out for these:

  • Confusing markup with margin and expecting a higher return than you get
  • Forgetting overhead and indirect costs when you set the markup
  • Ignoring discounts, returns, and waste that reduce your real profit
  • Setting a markup once and never revisiting it as costs change

Checking your figures regularly is the simplest safeguard, so build a habit to measure your profitability as prices and costs move.

Track your markup and margins with Xero

Getting markup right is easier when you can see your costs, prices, and profit in one place. Xero accounting software tracks your sales and costs and turns them into clear reports, so you can spot which products earn their keep and adjust pricing with confidence. Sign up and get one month free to start tracking your markup and margins.

FAQs on calculating markup

Here are answers to common questions about calculating markup.

How do you calculate markup?

Subtract the cost from the selling price, divide the result by the cost, then multiply by 100 to get the markup percentage.

What is the difference between markup and margin?

Markup is profit shown as a percentage of cost, while margin is the same profit shown as a percentage of the selling price, so the margin figure is always lower.

What is a good markup percentage?

There is no universal figure, as it depends on your industry, costs, and what customers will pay, so compare your markup against similar businesses.

How do you work out a selling price from markup?

Multiply the cost by the markup percentage to find the markup amount, then add that amount to the cost to get the selling price.

Should markup cover overhead costs?

Your markup should be high enough to cover overhead such as rent and wages and still leave a profit, so factor in indirect costs before you set it.

Related terms

Learn more about markup

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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.