Published Monday 22 June 2026

Table of contents

• What is markup?
• How to calculate markup percentage
• Markup calculation example
• Why markup matters for your business
• Markup vs margin: what is the difference?
• How to set the right markup for your products
• Simplify your pricing with Xero
• FAQs on markup

Key takeaways

• Markup is the percentage you add to a product's cost price to set its selling price and cover your costs, overheads, and profit.
• The markup formula is (Selling Price - Cost Price) / Cost Price x 100, giving you a clear percentage to apply across your product range.
• Markup and margin are not the same; markup is based on cost price while margin is based on selling price, and confusing them can lead to underpricing.
• Reviewing your markup regularly helps you stay profitable as supplier costs, overheads, and market conditions change.

What is markup?

If you sell products or services, you need a reliable way to set prices that cover your costs and leave room for profit. Markup is the pricing tool that helps you do exactly that.

Markup is the percentage added to the cost price of a product or service to arrive at its selling price. For example, if a product costs you £20 to produce or buy, and you sell it for £30, the extra £10 is your markup. Expressed as a percentage, that's a 50% markup.

For small businesses, markup is one of the simplest ways to build a consistent pricing strategy. It gives you a repeatable method for setting prices across your product range, so you're not guessing each time you bring something new to market.

How to calculate markup percentage

Knowing the formula for markup percentage helps you set prices confidently and compare pricing across different products. You can also use Xero's free markup calculator to check your numbers quickly.

The formula is:

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

Here's what each part means:

• Cost price: the total amount you pay to produce or purchase the product, including materials, labour, and any direct costs
• Selling price: the price your customer pays
• The difference: subtracting cost price from selling price gives you the profit in pounds
• Dividing by cost price: this turns that pound amount into a ratio relative to your costs
• Multiplying by 100: this converts the ratio into a percentage

Markup calculation example

Seeing the formula in action makes it easier to apply to your own products. Here's a step-by-step worked example.

Suppose you run a small business selling handmade candles. A candle costs you £40 to make, and you sell it for £60.

Step 1: subtract the cost price from the selling price. £60 - £40 = £20.

Step 2: divide the result by the cost price. £20 / £40 = 0.5.

Step 3: multiply by 100 to get the percentage. 0.5 x 100 = 50%.

Your markup on that candle is 50%.

Here's a second quick example. You buy a batch of notebooks at £8 each and sell them for £14. The calculation is (£14 - £8) / £8 x 100 = 75%. That means you're applying a 75% markup on each notebook.

Why markup matters for your business

Getting your markup right has a direct impact on your bottom line. Here's why it deserves your attention.

• It ensures your costs are covered: a well-calculated markup accounts for your cost of goods, so you're not selling at a loss.
• It enables consistent pricing: applying a standard markup across your product range removes guesswork and keeps your pricing strategy predictable.
• It supports profitability tracking: when you know the markup on each product, you can quickly identify which items deliver the strongest returns.
• It aids financial planning: consistent markups make it easier to forecast revenue, manage cash flow, and plan for growth. Learn more about how to increase your profits.

Markup vs margin: what is the difference?

Markup and margin are closely related, but they measure profitability in different ways. Mixing them up is one of the most common pricing mistakes small businesses make.

Gross margin (often just called margin) is the percentage of the selling price that represents profit. The formula is (Selling Price - Cost Price) / Selling Price x 100.

The key difference is what each percentage is based on. Markup is calculated on the cost price. Margin is calculated on the selling price.

Using the candle example from earlier, where the cost price is £40 and the selling price is £60:

• Markup: (£60 - £40) / £40 x 100 = 50%
• Margin: (£60 - £40) / £60 x 100 = 33.3%

The same £20 profit produces 2 very different percentages depending on which formula you use. If you aim for a 50% margin but accidentally apply a 50% markup instead, you'll end up with a lower margin than intended, and your profits will fall short. Always be clear about whether you're working with markup or margin when setting prices. For a deeper look at how to calculate and use margins, see the guide on profit margin.

How to set the right markup for your products

There's no single "correct" markup that works for every business. The right figure depends on your costs, your industry, and your competitive landscape.

• Consider your cost of goods sold (COGS): start with a clear picture of what each product costs to produce or purchase, including materials, labour, and shipping.
• Factor in overhead costs: rent, utilities, insurance, and software subscriptions all need to be covered by your pricing, so your markup should account for more than just direct costs.
• Research industry benchmarks: typical markups vary widely by sector; retail clothing often uses 50-100%, while grocery margins tend to be much thinner.
• Account for competition: if competitors offer similar products at lower prices, a very high markup could push customers away; if your product offers something unique, you may have more flexibility.
• Review regularly as costs change: supplier prices, shipping rates, and overheads shift over time, so revisit your markup at least quarterly to make sure your pricing still works.

Simplify your pricing with Xero

Tracking your costs and revenues accurately is the foundation of any good pricing strategy. When you can see exactly what you're spending and earning, setting the right markup becomes much more straightforward.

Xero's accounting software gives you real-time reporting and cash flow monitoring, so you can spot changes in your costs early and adjust your pricing before they eat into your margins. With automated bank feeds and reconciliation, your financial data stays up to date without hours of manual admin. To see how Xero can support your pricing decisions, get one month free.

FAQs on markup

Here are answers to frequently asked questions about markup.

How do you calculate markup percentage?

Subtract the cost price from the selling price, divide the result by the cost price, and multiply by 100. This gives you the markup as a percentage of your cost.

What is the difference between markup and margin?

Markup is the profit expressed as a percentage of the cost price, while margin expresses the same profit as a percentage of the selling price. The same pound figure will always produce a higher markup percentage than margin percentage.

What is a good markup percentage?

It depends on your industry and business model. Retail businesses commonly use markups between 50% and 100%, while food and beverage businesses often work with markups of 200-300% on individual menu items to cover high overheads.

Should you include overhead costs in your markup?

Yes, your markup should cover more than just the direct cost of producing or purchasing a product. Factor in rent, utilities, wages, and other operating expenses to make sure your pricing supports the full cost of running your business.

What is the difference between markup and markdown?

Markup is the amount added to a cost price to set a higher selling price. Markdown is the opposite: it's a reduction from the original selling price, typically used during sales or to clear slow-moving stock.