How to calculate markup
Learn the markup formula, set prices from cost, and see how markup differs from margin.
Published Monday 17 August 2026
Table of contents
How to calculate markup
Key takeaways
- Markup is your profit shown as a percentage of cost, calculated as (selling price minus cost) divided by cost, times 100.
- To set a price from a markup, add the markup to your cost; to find a cost from a price, divide the selling price by 1 plus the markup as a decimal.
- Markup and margin are not the same measure: a 50% markup equals a 33.3% margin, and a 100% markup equals a 50% margin.
- A good markup covers your costs, funds growth, and stays competitive, and it varies widely by industry.
What is markup?
How to calculate sales price with markup
Markup is the percentage added to the cost of a product or service to determine its selling price. It's your profit on each sale, expressed as a portion of your cost.
If you spend ₱100 to produce an item and sell it for ₱150, your markup is 50%. Understanding markup helps you price products profitably while staying competitive. It's closely related to gross profit margin, though the two are calculated differently.
How to calculate markup
To find your markup percentage, you need two figures: your cost price (what you paid or spent to produce the item) and your selling price (what the customer pays).
The formula is:
Markup % = (selling price − cost) ÷ cost × 100
For example, if your business makes sofas for ₱20,000 and sells them for ₱27,000:
Markup = (₱27,000 − ₱20,000) ÷ ₱20,000 × 100 = 35%
This means you add 35% to your cost of goods sold to arrive at the selling price.
How to use markup to set your selling price
Once you know your desired markup percentage, you can work out the selling price for any product or service.
The formula is:
Selling price = cost + (cost × markup)
For example, if your cost is ₱20,000 and you want a 35% markup:
Selling price = ₱20,000 + (₱20,000 × 0.35) = ₱20,000 + ₱7,000 = ₱27,000
This approach lets you apply consistent pricing across your product range based on your cost of sales calculation.
How to work out cost price from markup
Sometimes you know the selling price and markup but need to find the original cost. This is useful when analysing competitor pricing or reviewing historical data.
The formula is:
Cost price = selling price ÷ (1 + markup as a decimal)
For example, if the selling price is ₱27,000 at a 35% markup:
Cost = ₱27,000 ÷ 1.35 = ₱20,000
Markup vs margin
Markup and margin both measure profitability, but they use different reference points. Markup calculates profit as a percentage of cost, while margin calculates profit as a percentage of selling price. This distinction matters when setting prices or comparing your profit margin against industry benchmarks.
Key differences to remember:
- A 50% markup equals a 33.3% gross margin
- A 100% markup equals a 50% gross margin
- Markup is always higher than margin for the same sale
- Margin can never exceed 100%, but markup can be any positive percentage
What is a good markup percentage?
Markup percentages vary widely by industry, product type, and business model. There's no single correct markup, but understanding typical ranges helps you benchmark your pricing.
General patterns include:
- Retail businesses often use markups of 50% or higher to cover operating costs
- Consumer electronics typically run lower, around 10–30%, because buyers are price sensitive
- Restaurants and food service commonly apply markups of 100–300% on ingredients
- Professional services may mark up labour costs by 50–100% or more
Your ideal markup depends on your overhead costs, target profit, competition, and what customers are willing to pay. Consider your marginal cost when deciding how low you can go on individual sales.
Why markup matters for your business
Getting markup right affects every part of your finances. Set it too low and you may struggle to cover costs or reinvest in growth. Set it too high and customers may choose competitors instead.
Consistent markup helps you forecast cash flow, plan inventory purchases, and measure product performance. It also makes quoting easier, since you can apply a standard formula rather than guessing prices on the spot. For small businesses in the Philippines, where cash flow timing can be unpredictable, a clear markup strategy gives you better control over profitability.
Set profitable prices with Xero
Accurate costing and real-time financial visibility make it easier to set markups that protect your profit. Xero gives you a clear view of your costs and margins, so you can price with confidence. You can get one month free and see how better data leads to smarter pricing decisions.
FAQs on calculating markup
Here are quick answers to common questions about 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 sale will always have a higher markup percentage than margin percentage.
Is a 50% markup the same as a 50% margin?
No. A 50% markup on a ₱100 cost gives a ₱150 selling price and a 33.3% margin. A 50% margin would require selling the same item for ₱200.
What is a good markup percentage?
It depends on your industry and costs. Retail often uses 50% or more, electronics runs 10–30%, and food service may go above 100%. Aim for a markup that covers costs, funds growth, and stays competitive.
Can markup be negative?
Yes, if you sell below cost. This sometimes happens during clearance sales or promotional pricing, but sustained negative markup leads to losses.
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.