How to calculate markup
Markup is the percentage added to cost to set a selling price. Learn the formula and how it differs from margin.
Published Wednesday 12 August 2026
Table of contents
How to calculate markup
Key takeaways
- Markup is the percentage you add to a product's cost price to set its selling price, helping you cover expenses and earn a profit.
- The markup formula is (selling price − cost price) ÷ cost price × 100, giving you a percentage based on cost.
- Markup and margin are not the same: markup is profit as a percentage of cost, while margin is profit as a percentage of the selling price.
- A good markup depends on your industry, overhead costs, competition and what customers are willing to pay.
What is markup?
How to calculate sales price with markup
Markup is the amount you add to the cost price of a product or service to determine its selling price. It's expressed as a percentage of the cost price.
Markup matters because it helps you cover your operating costs and build in a profit. Unlike margin, which is calculated from the selling price, markup is always based on what the item costs you to produce or buy.
The markup formula
Once you know your cost and selling price, working out the markup percentage is straightforward.
Markup % = (selling price − cost price) ÷ cost price × 100
This formula tells you the profit you're making as a percentage of your cost. You can use it to compare pricing across products or to check whether your current prices meet your profit goals.
How to calculate markup: a worked example
Here's how to apply the formula to a real scenario.
Suppose a sofa costs R1,000 to manufacture and you sell it for R1,350. Using the formula:
Markup % = (R1,350 − R1,000) ÷ R1,000 × 100 = 35%
This means you're adding 35% on top of your cost to arrive at the selling price.
How to calculate a selling price from markup
If you already know the markup percentage you want, you can work backwards to find the selling price.
Selling price = cost price + (cost price × markup %)
Using the same sofa example, if it costs R1,000 to produce and you want a 35% markup:
Selling price = R1,000 + (R1,000 × 0.35) = R1,350
This reverse calculation is useful when you're setting prices for new products or adjusting existing ones.
Markup vs margin: what's the difference?
Markup and profit margin are often confused, but they measure profit differently. Getting them mixed up can lead to pricing errors.
Markup is profit expressed as a percentage of the cost price. Margin, sometimes called gross profit margin, is profit as a percentage of the selling price. The two percentages will always differ for the same transaction.
Consider this example: you buy a product for R60 and sell it for R100. Your profit is R40.
- Markup = R40 ÷ R60 × 100 = 67%
- Profit margin = R40 ÷ R100 × 100 = 40%
Both figures describe the same R40 profit, but from different starting points. Always clarify which metric you're using when discussing pricing or profitability.
What's a good markup?
There's no single "normal" markup that applies to every business. What counts as a good markup varies widely depending on your industry and circumstances.
Retail and wholesale businesses often work with different markups than service providers or manufacturers. Food and beverage businesses may have slim margins on ingredients but higher markups on prepared items. Professional services typically factor in time and expertise rather than physical goods.
The right markup for your business depends on your full cost base, what competitors charge, and what your customers are willing to pay. Tracking your numbers over time helps you measure profitability and adjust pricing when needed.
How to choose your markup percentage
Setting a markup involves weighing several factors. Before settling on a percentage, consider these points.
- Your full cost, including overheads: don't mark up only the purchase price. Include indirect costs such as rent, utilities, wages and cost of goods sold.
- The profit you need: decide on a target profit that sustains and grows your business.
- Competitor pricing: check what similar products or services sell for in your market.
- Customer perception: price at a level your target customers see as fair value.
Getting your cost of sales right before applying a markup helps ensure your prices actually cover what it costs to run your business.
Common markup mistakes
Pricing errors can eat into your profits. Here are some common pitfalls to avoid.
- Confusing markup with margin: using a 40% margin figure when you meant 40% markup will leave you short on profit.
- Forgetting to include overheads in the cost base: marking up only the direct purchase price ignores expenses like rent, insurance and staff wages.
- Ignoring industry norms and competitor pricing: setting a markup without researching your market can price you out of sales or leave money on the table.
Set profitable prices with Xero
Xero accounting software gives you a clear view of your costs, margins and overall profitability, so you can set prices with confidence. With real-time reports and automated data capture, you spend less time on admin and more time running your business.
Ready to take control of your numbers? Get one month free and see how Xero can help you price for profit.
FAQs on markup
Here are answers to common questions about markup and pricing.
What is markup in simple terms?
Markup is the percentage you add to what something costs you, so you can sell it at a higher price and make a profit.
How do you calculate markup?
Use the formula: (selling price − cost price) ÷ cost price × 100. The result is your markup percentage.
What is the difference between markup and margin?
Markup is profit as a percentage of cost, while margin is profit as a percentage of the selling price. A 50% markup and a 50% margin represent different actual profits.
How do you calculate a selling price from markup?
Multiply the cost price by the markup percentage, then add that amount to the cost. For example, R1,000 cost with 25% markup gives a selling price of R1,250.
What is a good markup percentage?
It depends on your industry, costs and competition. Research your market and ensure your markup covers all expenses while remaining attractive to customers.
Related terms
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.