Markup
Learn what markup is, how to calculate it, and how it differs from profit margin.
Published Thursday 23 July 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 the cost of a product or service to set its selling price, shown as a percentage of the cost.
- To find the markup percentage, subtract the cost price from the selling price, divide by the cost price, then multiply by 100.
- Markup and margin aren't the same. Markup is based on the cost price and margin is based on the selling price, so the markup percentage is always higher than the margin percentage for the same item.
- There's no single correct markup. The right amount depends on your costs, overheads, customer demand, competition and how much customers value what you sell.
What is markup?
Markup is the amount you add to the cost of a product or service to set its selling price, expressed as a percentage of that cost. It's how you turn what you paid into what you charge, so the sale covers your costs and leaves room for profit.
In accounting software, markup is often entered as a decimal rather than a percentage. A 35% markup is entered as 0.35, and the system multiplies your cost price by that figure to work out the selling price.
How to calculate markup
You can work out the markup percentage from any two figures: what an item costs you and what you sell it for. The formula is: markup % = ((selling price − cost price) / cost price) × 100.
- Note your cost price and selling price. In this example, a product costs $20 and sells for $60.
- Subtract the cost price from the selling price: $60 − $20 = $40.
- Divide that result by the cost price: $40 / $20 = 2.
- Multiply by 100 to get the markup percentage: 2 × 100 = 200%.
Markup vs margin
Markup and margin both measure the gap between cost and selling price, but they use different starting points. Markup is based on the cost price, while profit margin is based on the selling price, so the markup percentage is always higher than the margin percentage for the same item.
Take a product that costs you $60 and sells for $100. The gross profit is $40 either way. As a markup, that $40 is 66.7% of the $60 cost price. As a margin, the same $40 is 40% of the $100 selling price.
Typical markups by industry
Markups vary widely from one industry to the next, so there's no single normal figure to aim for. What counts as healthy in one sector would be far too high or too low in another.
- Groceries and everyday essentials tend to run on lower markups and rely on high sales volume
- Apparel and luxury goods often carry much higher markups to cover branding, seasonality and slower turnover
- Hospitality and food service mark up ingredients heavily to cover labour, wastage and overheads
- Service businesses can mark up both their labour and any materials they supply
How to set the right markup for your business
The right markup covers all your costs and leaves the profit you need, while keeping your prices attractive to customers. Weigh up a few factors before you settle on a number.
- Cost of goods sold, so every direct cost of making or buying the item is covered
- Overheads, such as rent, wages and utilities that the sale needs to help pay for
- Customer demand, since strong demand can support a higher markup
- Competition, because your prices need to stay credible against similar businesses
- Customer perception, as quality, service and brand can justify charging more
It also helps to review your numbers regularly as costs change. For more on this, read Xero's guide to pricing strategies.
Track your markup and profit with Xero
Xero accounting software brings your costs, sales and profit together in one place, so you can see how your pricing is performing. Keep an eye on your numbers, adjust your markup with confidence and see your results in real time. Get one month free.
FAQs on markup
Here are answers to some frequently asked questions about markup to help you price with confidence.
What is a good markup percentage?
There's no single good markup percentage, because it depends on your industry, costs and competition. Essentials often sell on lower markups, while luxury and specialist goods can carry much higher ones.
Is markup the same as profit?
No. Markup is how far you set your selling price above cost, while profit is what's left once all your costs are paid.
How do I convert markup to a margin?
Divide the markup by one plus the markup, using decimals. A 66.7% markup becomes 0.667 / 1.667 = 0.40, or a 40% margin.
Why is markup entered as a decimal?
Many accounting tools store markup as a decimal so they can multiply it by the cost price automatically. That's why a 35% markup is entered as 0.35.
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.