Markup
Learn what markup is, how to calculate it with a simple formula, and how it differs from margin.
Published Wednesday 12 August 2026
Table of contents
Markup is entered as a decimal. For example, a 35% markup is shown as 0.35
Key takeaways
- Markup is the amount added to a product's cost price to reach its selling price, expressed as a percentage of the cost.
- The markup formula is: markup percentage = ((selling price − cost price) ÷ cost price) × 100.
- Markup and margin are different: markup is a percentage of cost, while gross profit margin is a percentage of the selling price, so the markup percentage is always higher for the same rand profit.
- A sensible markup covers all your costs, accounts for competition and perceived value, and leaves enough profit to sustain your business.
What is markup?
Markup is the amount added to the cost price of a product or service to arrive at its selling price, expressed as a percentage of the cost. It represents the portion of revenue that covers operating expenses and contributes to gross profit.
For example, if you buy stock for R60 and sell it for R100, the R40 difference is your markup in rand terms. Expressing that as a percentage of the cost tells you exactly how much extra you're charging above what you paid.
The markup formula
The standard formula for calculating markup as a percentage is:
Markup percentage = ((selling price − cost price) ÷ cost price) × 100
This formula gives you a clear view of how much you're adding on top of your cost of goods sold to reach your selling price.
How to calculate markup
Calculating markup takes only a few steps once you know your cost and selling prices.
- Identify the cost price (what you pay or spend to produce the item).
- Identify the selling price (what the customer pays).
- Subtract the cost price from the selling price to find the rand profit.
- Divide that profit by the cost price.
- Multiply by 100 to convert to a percentage.
For a product that costs R60 to buy or make and sells for R100, the calculation is: ((100 − 60) ÷ 60) × 100 = 66.7% markup.
You can also work backwards to set a selling price. If you want a 50% markup on a R60 cost, multiply R60 by 1.50 (that is, 1 + 0.50). The selling price is R90.
Markup vs margin
Markup and profit margin both describe the relationship between cost and profit, but they use different bases. Markup is calculated as a percentage of the cost price, while gross profit margin is calculated as a percentage of the selling price.
Using the same example: you buy for R60 and sell for R100, earning R40 profit. The markup is (40 ÷ 60) × 100 = 66.7%. The margin is (40 ÷ 100) × 100 = 40%. For the same rand profit, the markup percentage is always larger than the margin percentage because the cost (the markup base) is smaller than the selling price (the margin base).
How to set a sensible markup
Choosing the right markup means balancing several factors so you cover costs and stay competitive.
- Cover total costs: your markup must exceed the sum of direct costs, overheads and any taxes or fees, or you'll sell at a loss.
- Watch your competition: if rivals offer similar products at lower prices, a very high markup could push customers away.
- Consider perceived value: premium positioning or strong branding can support a higher markup.
- Know industry norms: typical markups vary widely by sector, with everyday essentials like groceries often carrying low markups and discretionary goods like fashion carrying much higher ones.
Profit margins in South Africa are tight. Across all South African businesses the average after-tax profit margin was just 1.3% in 2024, according to Statistics South Africa's Annual Financial Statistics as analysed by the Bureau of Market Research. With margins this thin, a markup that comfortably covers total costs is essential for survival.
Price with confidence using Xero
Setting a profitable markup is easier when you can see your costs clearly and measure your profitability in real time. Xero pulls your sales, expenses and inventory data into one place, so you can track margins and adjust pricing before small losses add up. Ready to take control of your numbers? Sign up to get one month free.
FAQs on markup
Below are common questions about markup and how it applies to pricing.
What is markup in simple terms?
Markup is the extra amount you add to what a product costs you, expressed as a percentage of that cost. It helps you set a selling price that covers expenses and generates profit.
How do you calculate markup?
Subtract the cost price from the selling price, divide that figure by the cost price, and multiply by 100 to get a percentage.
What is the difference between markup and margin?
Markup is a percentage of the cost price, while margin is a percentage of the selling price. For the same rand profit, the markup figure will always be higher.
How do you set a selling price using markup?
Multiply your cost price by 1 plus the markup expressed as a decimal. For a 40% markup on R50, multiply R50 by 1.40 to get a selling price of R70.
What is a good markup percentage?
A good markup depends on your industry, costs and competitive landscape. The key is ensuring it covers all expenses and leaves a sustainable profit after taxes.
Related terms
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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.