How to calculate markup

Markup tells you how much you have added to your cost to reach your selling price. Use this formula:

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

Say you make sofas for $1,000 and sell them for $1,350. Your markup is (($1,350 − $1,000) ÷ $1,000) × 100 = 35%.

If you would rather skip the arithmetic, Xero’s markup calculator works out the figure for you.

How to use markup to set your selling price

Many businesses start with a target markup and use it to set prices. In that case you run the formula the other way around:

selling price = cost + (cost × markup)

Say a sofa costs $1,000 to make and you want a 35% markup. Your selling price is $1,000 + ($1,000 × 0.35) = $1,350.

Markup vs margin: what’s the difference?

People often mix up markup and margin, but they measure profit against different starting points. Markup is a percentage of your cost, while margin is a percentage of your selling price, so the same sale always shows a higher markup figure than margin.

Take a product that costs $100 and sells for $150, giving a $50 profit:

Markup is profit as a percentage of cost. Here that is ($50 ÷ $100) × 100 = 50%.
Margin is profit as a percentage of selling price. Here that is ($50 ÷ $150) × 100 = 33.3%.

For more on how these two measures compare, see markup and margin. To understand margin on its own, read about gross profit margin.

What’s a good markup, and what affects it?

There is no single right markup. The best figure covers your costs and target profit while keeping your prices attractive to customers. Several things shape it:

your cost of goods sold, the direct cost of making or buying what you sell
overhead costs like rent, wages and utilities
competitor pricing in your market
customer demand and how much buyers will pay
the perceived value of your product or brand

Markups vary widely from one industry to the next, so research typical ranges for your sector before you commit. When your costs climb, review your pricing and, where the market allows, raise your prices to protect your profit.

Set profitable prices with Xero

Getting markup right is easier when you can see your true costs and profit clearly. Xero brings your expenses, sales and reports together so you can track your margins in real time and price with confidence. Start today and get one month free to keep your pricing on track.

FAQs on markup

Here are answers to common questions about calculating and using markup.

What is a good markup percentage?

There is no universal figure, because a good markup depends on your costs, competition and profit goals. Retailers often apply 50% to 100%, while some service businesses work with 20% to 50%.

Can markup be negative?

Yes. A negative markup means you are selling below cost, which some businesses do briefly to clear old stock or draw in customers, though it loses money on each sale.

Is a higher markup always better?

No. A higher markup lifts your profit on each sale, but pricing above what customers are willing to pay can cut your total sales and revenue.

What is keystone markup?

Keystone markup is a 100% markup, where you double your cost to set the selling price. It is a common retail rule of thumb rather than a fixed standard.

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.

How to calculate markup

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What is markup?