Markup is the amount added to the cost of a product or service to determine its selling price. It can be expressed as a fixed amount or as a percentage of cost.
What is markup?
If an item costs $80 and sells for $100, the markup is $20.
Markup percentage formula:
Markup percentage = (Selling price − Cost) ÷ Cost × 100
Using the same example:
($100 − $80) ÷ $80 × 100 = 25% markup
Markup vs. margin
Markup and gross margin measure the same transaction from different starting points.
Markup compared with gross margin
| Measurement | Formula | Result in the example |
|---|---|---|
| Markup | Profit ÷ Cost | 25% |
| Gross margin | Profit ÷ Selling price | 20% |
A 25% markup does not produce a 25% gross margin. Confusing the two can produce a selling price below the business's intended margin target.
To calculate a price using a target markup:
Selling price = Cost × (1 + Markup percentage)
To calculate a price using a target margin:
Selling price = Cost ÷ (1 − Target margin)
What should be included in cost?
The cost used in a markup calculation should reflect the expenses the seller intends to recover. Depending on the transaction, that may include:
- Supplier price
- Freight and insurance
- Customs duties and handling
- Direct labor
- Payment or marketplace fees
- Other costs required to fulfill the order
For imported products, using only the supplier's unit price can understate the true cost. The business may need to use landed cost before applying its markup.
How businesses apply markup
A business may use different markups for different product categories, customers or order sizes. Commodity products often require tighter pricing, while custom or difficult-to-source items may need to cover additional labor, inventory risk or project complexity.
Markup can also work alongside tiered pricing. A seller might begin with a standard markup and reduce it at higher quantity levels, provided every tier still meets its approved price floor.
Best practices
Document which costs belong in the calculation. Review supplier prices regularly and require approval when a quotation falls below its target margin.
The final quotation should also show the customer-facing price clearly. Internal costs and markup percentages do not normally need to appear unless the commercial arrangement requires that level of transparency.
For sellers preparing repeat or multi-line quotations, Quotable AI's sales quotation software keeps saved products, pricing and customer details available during quote creation.
