How to calculate markup

Published Thursday 23 July 2026

Table of contents

• What is markup?
• How to calculate markup
• How to calculate a selling price from markup
• Markup vs margin
• What to consider when setting your markup
• Set your prices with confidence using Xero
• FAQs on markup
• Related terms
• Learn more about markup

Key takeaways

• Markup is your profit shown as a percentage of what an item costs you.
• You work it out with the formula markup % = ((selling price minus cost) ÷ cost) × 100.
• Markup isn't the same as margin: markup is a percentage of cost, while margin is a percentage of the selling price.
• Knowing your markup helps you set a selling price that covers your costs and leaves the profit you want.

What is markup?

Markup is the amount you add to what a product costs you, shown as a percentage of that cost. It's how you turn a cost price into a selling price that earns you a profit.

When you set a markup, you're deciding how much extra to charge on top of your cost of goods sold (COGS), the direct cost of making or buying the item. That extra covers your other expenses and gives you the profit you're after, so the percentage you choose has a direct effect on your bottom line.

How to calculate markup

To find your markup, you compare the profit on a sale with what the item cost you. Here's the formula:

markup % = ((selling price minus cost) ÷ cost) × 100

Say you make sofas for $1000 each and sell them for $1350, and you want to know your markup. Work through these 3 steps:

1. Subtract the cost from the selling price: $1350 minus $1000 = $350.
2. Divide that profit by the cost: $350 ÷ $1000 = 0.35.
3. Multiply by 100 to get a percentage: 0.35 × 100 = 35%.

So a sofa that costs $1000 and sells for $1350 has a 35% markup. If you'd rather skip the sums, a markup calculator does the maths for you.

How to calculate a selling price from markup

Plenty of businesses do it the other way round: they pick a markup first, then apply it to costs to find the selling price. Here's the formula:

selling price = cost × (1 + markup %)

Using the same sofa, the cost to produce one is $1000 and you've decided on a 35% markup. Work through these 3 steps:

1. Turn the markup into a decimal: 35% = 0.35.
2. Add 1 to that decimal: 1 + 0.35 = 1.35.
3. Multiply the cost by that figure: $1000 × 1.35 = $1350.

Your selling price is $1350, which matches the earlier example. Applying a set markup like this makes it quick to price new stock consistently as it comes in.

Markup vs margin

Markup and margin both measure profit, but they use different starting points, so they're easy to mix up. The key difference is what each one is a percentage of.

• Markup is your profit as a percentage of the cost price.
• Margin is your profit as a percentage of the selling price.

Take the $1000 sofa sold for $1350. The $350 profit is 35% of the $1000 cost, so the markup is 35%. That same $350 is about 26% of the $1350 selling price, so the gross profit margin is roughly 26%. It's the same sale and the same profit, just measured against a different base.

Getting the two straight matters because a healthy-looking markup can hide a slimmer profit margin once you account for the higher selling price. Use markup to set prices and margin to check how profitable each sale really is.

What to consider when setting your markup

There's no single right markup, because the figure that works depends on your business and your market. Weigh up these factors before you settle on a percentage:

• COGS: the direct cost of making or buying each item you sell
• Overheads: the running costs like rent, power and wages that a sale needs to help cover
• Competition: what similar businesses charge and how your prices sit against theirs
• Perceived value: how much customers believe your product is worth and will happily pay

Once you've weighed these up, a clear pricing strategy helps you apply a markup that stays profitable as costs shift.

Set your prices with confidence using Xero

Solid pricing starts with knowing your true costs and profit on every sale. Xero brings your income and expenses together in one place, so you can see how each product performs and adjust your markup with the numbers in front of you.

With clear reporting and real-time insights, you can price to protect your profit, and Xero helps you spend less time on manual admin. Sign up today and get one month free.

FAQs on markup

Here are answers to some frequently asked questions about markup to help you price with confidence.

How is markup calculated?

You subtract the cost from the selling price, divide the result by the cost, then multiply by 100. That gives you the markup as a percentage of what the item cost you.

What is a good markup percentage?

A good markup depends on your industry, overheads and how competitors price similar products. Compare a few options against your costs and margin to find a percentage that stays profitable.

What is the difference between markup and margin?

Markup measures profit against the cost price, while margin measures the same profit against the selling price. The margin percentage is always lower than the markup on the same sale.

Should you include overhead costs in your markup?

Your markup should be high enough that the profit helps cover overheads like rent and wages, not just the direct cost of the item. Check that the price still leaves a profit once those running costs are accounted for.

Related terms

• Margin vs markup
• What is markup
• How to calculate gross profit
• Cost of sales

Learn more about markup

• How to measure profitability
• Create a small business budget
• Small business marketing