How to calculate markup

Published Thursday 23 July 2026

Table of contents

• What is markup?
• The markup formula
• How to calculate markup percentage step by step
• How to use markup to set selling prices
• Markup vs margin: what's the difference?
• Typical markup percentages by industry
• What to consider when setting your markup
• Common markup mistakes to avoid
• Simplify your pricing with Xero
• FAQs on markup

Key takeaways

• Markup is the percentage you add to a product's cost to reach its selling price, and it's calculated with a simple formula: Markup % = ((Selling Price - Cost) / Cost) x 100.
• Markup and margin are not the same thing. Markup is based on cost, while margin is based on selling price, so a 50% markup translates to a 33.3% margin.
• The right markup depends on your industry, cost structure, competitors, and the value your customers see in your product or service.
• Tracking your costs and revenue in accounting software like Xero makes it easier to set accurate markups and protect your profit margins over time.

What is markup?

Markup is the amount you add to the cost of a product or service to arrive at its selling price. It's usually expressed as a percentage of the cost. For example, if a product costs you $50 and you sell it for $75, you've applied a 50% markup.

Businesses use markup to make sure each sale covers the cost of the item plus contributes toward overhead expenses and profit. Getting your markup right is one of the most important pricing decisions you'll make as a small business owner. Set it too low and you won't cover your costs; set it too high and you risk losing customers to competitors.

Markup gives you a straightforward way to build profit into every price you set. Once you know your costs and your target markup percentage, you can price new products quickly and consistently.

The markup formula

The standard markup formula lets you calculate the percentage you've added (or plan to add) on top of your cost. Here it is in plain text:

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

Each part of the formula has a clear role. "Cost" is what you pay to acquire or produce the item. "Selling Price" is what you charge your customer. The difference between the 2 is your gross profit on that item, and dividing by cost turns it into a percentage.

Here's a worked example. Say you buy phone cases for $8 each and sell them for $20:

• Selling Price - Cost = $20 - $8 = $12
• $12 / $8 = 1.5
• 1.5 x 100 = 150%

Your markup on each phone case is 150%. That means you're charging 1.5 times the cost on top of what you paid.

How to calculate markup percentage step by step

Follow these steps to calculate the markup on any product or service you sell.

1. Determine your cost

Add up everything you spend to acquire or produce the item. This includes the purchase price or raw materials, shipping, packaging, and any direct labor involved. Learn more about identifying your marginal costs to make smarter pricing decisions. If you're a retailer, your cost is typically the wholesale price plus freight. If you manufacture products, include materials and production labor.

2. Identify your selling price

This is the price your customer pays at the point of sale. If you haven't set a price yet and you're calculating a target markup, skip to the next section on setting selling prices. If you're analyzing an existing product, use the current listed price.

3. Subtract cost from selling price

This gives you the gross profit per unit. For example, if your cost is $25 and your selling price is $40, the gross profit is $15.

4. Divide by cost

Take the gross profit and divide it by the cost. Using the example above: $15 / $25 = 0.6.

5. Multiply by 100

Convert the decimal to a percentage. In this case, 0.6 x 100 = 60%. Your markup is 60%, meaning you charge 60% more than what the item costs you.

How to use markup to set selling prices

If you already know your cost and want to find the right selling price based on a target markup, you can reverse the formula. This is how most small business owners price new products.

Selling Price = Cost x (1 + Markup %)

When using this formula, convert your markup percentage to a decimal first. A 60% markup becomes 0.60.

Here's a worked example. You source candles for $12 each and want a 75% markup:

• Convert 75% to a decimal: 0.75
• Add 1: 1 + 0.75 = 1.75
• Multiply by cost: $12 x 1.75 = $21

Your selling price should be $21 per candle. At that price, you'd earn $9 in gross profit on each unit sold.

Markup vs margin: what's the difference?

Markup and margin both measure the relationship 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 business owners make.

Markup is the percentage added on top of cost. It answers: "How much more than cost am I charging?" Margin (also called profit margin) is the percentage of the selling price that's profit. It answers: "What portion of the selling price is profit?"

Here's the key difference. If you buy a product for $40 and sell it for $60:

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

The same dollar amount of profit ($20) produces a higher markup percentage than margin percentage. This is always the case because markup divides by the smaller number (cost) while margin divides by the larger number (selling price).

Here's a quick reference for common conversions between markup and margin:

• 15% markup = 13% margin
• 25% markup = 20% margin
• 50% markup = 33.3% margin
• 75% markup = 42.9% margin
• 100% markup = 50% margin

If your accountant or lender asks about your margins, make sure you're sharing the margin figure, not your markup. The 2 numbers will always be different. You can learn more about gross profit margin calculations in Xero's guide.

Typical markup percentages by industry

Markup percentages vary widely depending on the industry, the type of product, and how competitive the market is. These ranges can give you a starting point when pricing your own products or services.

• Retail (clothing, accessories): 50% to 100%
• Food and beverage (restaurants, cafes): 60% to 75%
• Grocery and convenience stores: 5% to 25%
• Jewelry: 100% to 300%
• Electronics and technology: 10% to 50%
• Professional services (consulting, design): 50% to 150%
• Construction and trades: 10% to 20%

These are general ranges, and your ideal markup may fall outside them. A business selling a unique, handmade product can often charge a higher markup than one selling a widely available commodity. The key is to know your costs, understand your market, and choose a markup that lets you stay profitable and competitive.

What to consider when setting your markup

Choosing the right markup involves more than plugging numbers into a formula. Several factors should guide your decision.

Your full cost structure

Your markup needs to cover more than the direct cost of a product. It also has to contribute toward rent, utilities, wages, marketing, insurance, and other overhead expenses. Understanding your full cost of sales is the first step. If you only mark up based on the purchase price and ignore overhead, you could sell plenty of products and still lose money. Track all your business costs so your markup reflects the true cost of running your operation.

Your competitors' pricing

Look at what similar businesses charge for comparable products. If your prices are significantly higher, you'll need a clear reason for customers to choose you, whether that's better quality, faster delivery, or stronger service. Calculating your margin of safety can help you understand how much room you have before pricing becomes a problem. If you're priced well below the competition, you might be leaving profit on the table.

Perceived value

Customers don't just pay for a product; they pay for the experience, brand reputation, convenience, and quality that come with it. A product with strong branding, premium packaging, or exceptional customer support can sustain a higher markup than the same product without those extras. Think about what makes your offering stand out and price accordingly.

Sales volume and turnover

High-volume products often work with lower markups because you make up for smaller per-unit profit by selling more. Low-volume or specialty items typically need a higher markup to justify the time and resources you invest in each sale.

Common markup mistakes to avoid

Setting your markup correctly can make or break your profitability. Here are some of the most common errors to watch for.

• Confusing markup with margin: a 50% markup is not the same as a 50% margin. Using them interchangeably can lead to pricing that's lower than you intended, which eats into your profits.
• Forgetting overhead costs: if your markup only covers the purchase price of a product, it won't cover rent, wages, or other expenses. Include all costs when calculating your break-even point.
• Setting one markup for everything: different products have different cost structures, demand levels, and competitive pressures. Apply different markups based on product category and market conditions.
• Ignoring your competitors: pricing in a vacuum can leave you overpriced or underpriced. Regularly check what similar businesses charge and adjust your strategy.
• Never adjusting your markup: costs change over time due to inflation, supplier increases, or shifts in demand. Review your markups at least quarterly to make sure they still support your profit goals.

Simplify your pricing with Xero

Getting your markup right starts with knowing your numbers. When your costs, revenue, and expenses are organized in one place, pricing decisions become much more straightforward.

Xero Accounting Software gives small business owners a clear view of their finances in real time. You can track what you spend on inventory or supplies, see how much you're earning on each sale, and monitor your profit margins without digging through spreadsheets. That makes it easier to set markups that actually protect your bottom line.

Whether you're pricing your first product or reviewing markups across your entire catalog, having accurate, up-to-date financial data helps you price with confidence. Get one month free.

FAQs on markup

Get answers to frequently asked questions about markup.

What is a good markup percentage?

There's no single "good" markup because it depends on your industry, costs, and competitive landscape. Most small businesses aim for a markup between 50% and 100%, but you should choose a percentage that covers all your expenses and still leaves a healthy profit after overhead.

How do you calculate markup from selling price?

Subtract your cost from the selling price to get the gross profit, then divide the gross profit by the cost and multiply by 100. If you only have the margin percentage and want to convert it, use: Markup % = (Margin % / (100 - Margin %)) x 100.

Is 50% markup the same as 50% margin?

No, they're quite different. A 50% markup on a $10 item gives you a $15 selling price, but the margin on that sale is only 33.3%. Markup and margin always produce different percentages because they use different bases (cost vs selling price).

Can markup be more than 100%?

Yes, a markup over 100% simply means you're charging more than double your cost. Jewelry, luxury goods, and specialty items routinely carry markups of 200% or higher, which is standard practice in those industries.

How often should you review your markup?

At minimum, review your markups every quarter or whenever your supplier costs change. Seasonal demand shifts, new competitors entering your market, or changes in your overhead expenses are all signals that it's time to recalculate your pricing.