How to calculate markup

Published Thursday 23 July 2026

Table of contents

• What is markup?
• How to calculate markup
• How to use markup to set your selling price
• How to calculate cost price from selling price and markup
• Markup vs margin: what is the difference?
• What factors affect your markup percentage?
• Markup percentages by industry
• Common markup mistakes to avoid
• Simplify your pricing with Xero
• FAQs on markup calculation

Key takeaways

• Markup is the percentage you add to your cost price to set a selling price, and you calculate it with a simple formula: ((Selling price - Cost price) / Cost price) x 100.
• Markup and margin are not the same thing; markup is based on cost price, while margin is based on selling price, so the same transaction produces different percentages.
• Your markup percentage should account for all costs, including overheads, not just the direct cost of goods, to make sure every sale contributes to profit.
• Reviewing your markup regularly helps you stay competitive, cover rising costs, and protect your profit margins over time.

What is markup?

Markup is the percentage you add to the cost price of a product or service to arrive at its selling price. It covers your costs, overheads, and profit, making it one of the most fundamental pricing decisions in any business.

Getting your markup right means you can cover what you spend, earn a fair profit, and stay competitive. Set it too low and you risk losing money on every sale; set it too high and you may struggle to attract customers. For a deeper look at how markup fits into your broader pricing approach, see this guide to markup strategies for small businesses.

The markup formula is:

Markup (%) = ((Selling price - Cost price) / Cost price) x 100

For example, if a product costs you £100 and you sell it for £150, your markup is ((£150 - £100) / £100) x 100 = 50%.

How to calculate markup

Calculating markup takes just a few steps once you know your cost price and selling price. Here's how to work it out.

1. Find your cost price. This is the total amount you pay to produce or purchase the product. For example, say you buy sofas for £1,000 each.
2. Find your selling price. This is the price you charge your customers. In this example, you sell each sofa for £1,350.
3. Subtract the cost price from the selling price. £1,350 - £1,000 = £350. This is your gross profit per sofa.
4. Divide the gross profit by the cost price. £350 / £1,000 = 0.35.
5. Multiply by 100 to get the percentage. 0.35 x 100 = 35%. Your markup on each sofa is 35%.

How to use markup to set your selling price

If you already know your cost price and the markup percentage you want to apply, you can use the formula below to set your selling price.

Selling price = Cost price + (Cost price x Markup percentage)

Express the markup percentage as a decimal. For example, a 40% markup becomes 0.40.

Say you run a candle business and each candle costs you £6 to make. You want to apply a 40% markup. Your selling price is: £6 + (£6 x 0.40) = £6 + £2.40 = £8.40. You'd price each candle at £8.40.

How to calculate cost price from selling price and markup

Sometimes you need to work backwards, for example, if you're analysing a competitor's pricing or checking that your own costs still support your selling price. You can reverse the markup formula to find the cost price.

Cost price = Selling price / (1 + Markup percentage)

Again, express the markup percentage as a decimal. If a product sells for £75 and the markup is 50% (0.50), the cost price is: £75 / (1 + 0.50) = £75 / 1.50 = £50. The cost price is £50.

Markup vs margin: what is the difference?

Markup and margin both measure the difference between cost and selling price, but they use different bases for the calculation. Confusing the 2 is one of the most common pricing errors small businesses make.

Markup is calculated as a percentage of the cost price. Margin (also called profit margin or gross margin) is calculated as a percentage of the selling price. Because the base is different, the same transaction produces different percentages.

Take a product that costs £40 and sells for £60. The markup is ((£60 - £40) / £40) x 100 = 50%. The margin is ((£60 - £40) / £60) x 100 = 33.3%. Same sale, different figures.

Use markup when you're setting prices, because it starts from the cost you already know. Use margin when you're reviewing profitability, because it shows how much of every pound of revenue you keep after costs. You can explore the distinction further in the margin vs markup glossary entry.

What factors affect your markup percentage?

Several factors influence how much markup you can, or should, apply. Considering each one helps you set prices that are profitable and realistic.

• Cost of goods sold (COGS): your direct costs, including materials, manufacturing, and shipping, form the baseline. Higher COGS usually means you need a higher selling price to maintain profit.
• Overhead costs: rent, utilities, insurance, software subscriptions, and salaries all eat into profit. Your markup should cover these costs as well as your direct costs.
• Profit goals: decide how much profit you want to make on each sale or across the business, and set your markup to reach that target.
• Competition: if competitors offer similar products at lower prices, you may need to reduce your markup or find ways to add value that justifies a higher price.
• Customer perception: customers associate higher prices with higher quality in some markets. In others, price sensitivity is the biggest factor. Understanding your customers helps you strike the right balance.
• Industry norms: every industry has typical markup ranges. Pricing far outside those ranges can make your products seem either overpriced or suspiciously cheap.
• Seasonal demand: during peak seasons you may be able to charge more, while off-peak periods might call for lower markups to keep stock moving.

Markup percentages by industry

Typical markups vary widely depending on the industry, product type, and business model. These ranges give you a rough guide, but your ideal markup depends on your own costs and goals.

• Retail: 50% to 100% or more, depending on the product category. Fashion and accessories often sit at the higher end.
• Food and beverage: 200% to 300% or higher, especially for restaurants and cafes where ingredient costs are low relative to the final price.
• Manufacturing: 25% to 50%, reflecting high production costs and competitive wholesale pricing.
• Services: 100% to 200%, since labour is often the main cost and there are fewer material expenses.
• Construction: 50% to 75%, accounting for labour, materials, and project-specific overheads.

Common markup mistakes to avoid

Even small pricing errors can eat into your profits over time. Here are the most common markup mistakes and how to steer clear of them.

• Confusing markup with margin: as covered above, they use different bases and produce different percentages. Treating them as interchangeable can lead to underpricing.
• Ignoring overhead costs: if your markup only covers direct costs, you won't have enough left over to pay rent, salaries, and other running costs. Include all business expenses when setting your markup.
• Using one markup for everything: different products and services have different cost structures. Applying a blanket markup across your entire range can leave some items unprofitable.
• Not reviewing your markup regularly: costs change, competitors adjust their prices, and customer expectations shift. Review your markup at least quarterly to make sure it still works for your business.
• Forgetting to factor in discounts and returns: if you regularly offer promotions or accept returns, build that into your markup so you still turn a profit after those deductions.

Simplify your pricing with Xero

Calculating markup is straightforward once you know the formula, but keeping track of costs, revenue, and profit margins across your whole product range takes more effort. Cloud accounting software can do the heavy lifting for you.

Xero helps give you visibility into your costs and revenue, so you can check whether your markups are delivering the profit you expect. You can also use the free markup calculator to test different pricing scenarios. Track what you spend, monitor what you earn, and run reports to see where your margins are strongest or where they need attention. Get one month free.

FAQs on markup calculation

Below are some frequently asked questions about markup calculation.

What is a good markup percentage?

A good markup depends on your industry, costs, and profit goals. Most small businesses aim for a markup that covers all expenses and leaves a healthy profit after overheads.

Can markup be negative?

Yes, if you sell a product for less than it costs you, the markup is negative. This sometimes happens during clearance sales, but sustained negative markup means you're losing money on every sale.

What is the difference between markup and profit margin?

Markup is the percentage added to cost price, while profit margin is the percentage of the selling price that represents profit. A 50% markup on a £40 item gives a selling price of £60, but the margin on that same sale is 33.3%.

Should you include overhead costs when calculating markup?

Yes. If your markup only covers direct product costs, you won't account for rent, utilities, wages, and other overheads. Factor in all business expenses to make sure each sale contributes to your overall profitability.