What Is Markup?
Markup is the amount added to the cost of a product or service to arrive at its selling price, usually expressed as a percentage of cost. It's how businesses set prices to cover overhead and build in profit.
What markup is and why it matters
Markup starts from cost and adds a percentage to reach price — a simple, common pricing method. Its critical nuance is that markup and margin are not the same: markup is measured against cost, margin against selling price, so a given profit always shows a higher markup percentage than margin percentage. Businesses that set prices by markup but think in margins routinely underprice. Understanding the relationship lets an owner translate a target margin into the markup they actually need to apply.
A worked example
A retailer buys an item for $50 and wants a 50% markup. Selling price = cost × (1 + markup) = $50 × 1.5 = $75. The $25 profit is a 50% markup on the $50 cost — but only a 33% margin on the $75 selling price ($25 ÷ $75). If the retailer actually wanted a 50% *margin*, it would need to price the item at $100 (a 100% markup), not $75.
How firms handle it today
Firms help clients set and check pricing by converting between markup and margin, ensuring target profitability is actually achieved rather than eroded by the markup/margin confusion.
Related terms
- Margin
- Gross margin
- COGS
- Revenue
- Break-even point
FAQ
What's the difference between markup and margin?
Markup is profit as a percentage of cost; margin is profit as a percentage of the selling price. The same profit gives a higher markup percentage.
How do you calculate selling price from markup?
Selling price = cost × (1 + markup percentage). A 50% markup on a $50 cost gives $75.
Why do businesses confuse markup and margin?
Because both describe the same profit, but measured against different bases — confusing them leads to underpricing.