Markup
Learn what markup is, how to calculate it and how it differs from margin, with worked RM examples.
Published Wednesday 30 September 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 amount you add to a product's cost to set its selling price, shown as a percentage of cost. It becomes the gross profit you earn on each sale.
- To find markup, divide the difference between selling price and cost by the cost, then multiply by 100. A product that costs RM40 and sells for RM60 has a 50% markup.
- Markup uses cost as its base and margin uses selling price, so markup is always the higher figure for the same sale. A 50% markup equals a 33.3% margin.
- A good markup covers your direct costs and a share of overheads at a price customers are happy to pay. Review it whenever supplier costs change.
What is markup?
Markup is the amount you add to the cost of a product or service to set its selling price. It's expressed as a percentage of that cost.
Many businesses price this way: they work out what it costs to provide their goods or services, then add a percentage on top. The amount you add ends up as your gross profit, which is revenue minus the cost of goods sold.
Picture a batik shop in Penang that buys scarves for RM40 each and sells them for RM60. The RM20 difference is the markup in ringgit, and 50% is the markup percentage. The right markup gives you enough cash to run the business and turn a profit, at a price customers will pay.
How to calculate markup
You calculate markup by dividing the profit on an item by its cost. The formula, as explained by Corporate Finance Institute, is:
Markup percentage = (selling price − cost) ÷ cost × 100
To work out a selling price from a markup you've already chosen, use this formula instead:
Selling price = cost × (1 + markup as a decimal)
Enter the markup as a decimal, so a 35% markup is 0.35. An item that costs RM40 with a 35% markup sells for RM40 × 1.35 = RM54.
Follow these steps to find the markup on any product you already sell. The example uses the RM40 scarf that sells for RM60.
1. Work out the cost of the product
Add up what you pay to get the item ready to sell, such as the supplier price and delivery charges. For the scarf, the total cost is RM40.
2. Subtract the cost from the selling price
This gives you the markup in ringgit. For the scarf, RM60 − RM40 = RM20.
3. Divide by the cost and multiply by 100
This turns the ringgit amount into a percentage of cost. RM20 ÷ RM40 = 0.5, and 0.5 × 100 = 50%, so the scarf has a 50% markup.
Markup vs margin
Markup measures profit as a percentage of cost, while margin measures it as a percentage of selling price. Both use the same profit figure; only the base you divide by changes.
Take the scarf again. The RM20 profit is 50% of the RM40 cost, which is the markup. It's also 33.3% of the RM60 selling price (RM20 ÷ RM60), which is the margin.
Cost is always lower than selling price, so markup is always the higher of the two numbers. You can switch between them with these formulas, using decimals:
Margin = markup ÷ (1 + markup)
Markup = margin ÷ (1 − margin)
For example, a 0.5 markup gives 0.5 ÷ 1.5 = 0.333, or a 33.3% margin.
What common markup percentages mean
Every markup percentage converts to a lower margin, and the gap widens as markup rises. Here's what common markups work out to:
- a 20% markup gives a margin of about 16.7%
- a 25% markup gives a margin of 20%
- a 30% markup gives a margin of about 23.1%
- a 50% markup gives a margin of about 33.3%
- a 100% markup gives a margin of 50%, which means doubling your cost
Use this list as a quick check when a supplier or accountant quotes one figure and you need the other.
How to choose your markup
The right markup covers every cost of running your business and still suits what customers will pay. Start with your own numbers, then test the price against the market.
When you set a markup, aim to:
- include all direct costs, such as the supplier price and delivery, before you add anything on top
- cover a share of overheads like rent and staff wages
- check competitor prices and the value customers see in your product
- vary your markup by product, based on demand and how easily customers can compare prices
- review your markup whenever supplier costs change
Overheads don't belong to a single item, so spread them across your expected sales. Say your shop pays RM3,000 a month in rent and sells 1,000 items. Each sale then needs to carry RM3 of rent before it adds to profit.
Common markup mistakes
Markup mistakes usually come from mixing up the base or leaving costs out. Watch for these when you set prices:
- using a margin target as a markup, which leaves your actual margin lower than planned
- ignoring indirect costs such as rent and utilities, which eats into profit on every sale
- applying one markup to every product, even when costs and demand differ
- keeping prices the same after supplier costs rise, which shrinks your markup
For example, if you want a 25% margin but add a 25% markup, you'll end up with a 20% margin. Hitting a 25% margin takes a markup of about 33.3%.
Track your markup and margins with Xero
Xero helps you keep your markup on track by showing sales and costs together in one place. Bank feeds bring in your transactions automatically, and easy-to-read reports show your gross profit so you can spot when a price needs to change.
Knowing your markup and margins gives you the confidence to price for profit as your business grows. Try Xero today and get one month free.
FAQs on markup
Here are quick answers to common questions about markup.
What does a 20% markup mean?
It means you add 20% of the cost to the cost to get your selling price. An item that costs RM100 sells for RM120, leaving RM20 to put towards overheads and profit.
Is 30% markup the same as 30% margin?
No, a 30% markup is only about a 23.1% margin. To earn a 30% margin, you'd need a markup of about 42.9%.
Is markup the same as profit?
Markup is your gross profit on an item, expressed as a percentage of its cost. Net profit is what's left after overheads, other operating expenses and tax, so your markup needs to cover those costs too.
Is 10% a margin or a markup?
It can be either, depending on whether it's based on cost or selling price. A 10% markup on an RM100 item gives an RM110 price and a margin of about 9.1%. A 10% margin needs a markup of about 11.1%.
Should I use the same markup for all my products?
Usually not, because products differ in cost, demand and how easily customers can compare prices. You might accept a lower markup on items customers buy often and compare widely. Specialised or slow-moving stock that costs more to hold can carry a higher one.
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.