What markup is and when to use it
Markup is the simplest way to set a price when you know your cost: add a fixed percentage on top. Wholesalers, retailers, contractors and restaurants all use it because it is quick to apply across a whole catalogue. A retailer might mark up clothing by 100% (called "keystone" pricing), a contractor might add 15% to materials, and a restaurant might mark up a bottle of wine by 200% or more.
The weakness of markup is that it says nothing about how much of the final price is profit. That is what margin measures, and it is the number your accountant, your bank and your marketplace dashboards will show you. If your pricing lives in markup but your reporting lives in margin, you need a reliable way to translate between them. That is what the table under the calculator is for.
Reading the markup versus margin table
The table takes your cost and shows the price, profit and margin for a range of common markups, plus your own markup highlighted. Two things stand out. First, margin always lags markup: a 50% markup is only a 33.3% margin, and a 100% markup is a 50% margin. Second, the gap grows as markup grows. Doubling the markup from 100% to 200% raises the margin from 50% to 66.7%, not to 100%.
Use the table to answer questions like "if I want a 40% margin, what markup do I need?" (the answer is 66.7%) or "what happens to my margin if I drop the markup from 50% to 30%?" (it falls from 33.3% to 23.1%, which is a third of the profit on every sale).
| Markup | Margin | Example: cost $50 |
|---|---|---|
| 25% | 20% | Price $62.50, profit $12.50 |
| 50% | 33.3% | Price $75.00, profit $25.00 |
| 100% | 50% | Price $100.00, profit $50.00 |
| 200% | 66.7% | Price $150.00, profit $100.00 |
Choosing a markup
A markup needs to cover more than the cost of the item. It has to pay for the costs that do not scale with each sale: rent, staff, software, marketing and your own time. A useful approach is to work backwards. Add up those overheads for a month, estimate how many units you will sell, and divide to find the overhead per unit. Your markup has to cover that overhead plus the profit you actually want to keep. The break-even calculator does this calculation directly.
Then check the result against the market. If your markup produces a price well above competitors, either your cost is too high or you need a reason for customers to pay more. If it produces a price well below, you are probably leaving money on the table, and raising the price costs nothing.
Common mistakes
- Using a margin target as a markup. Applying a 40% markup when the business plan calls for a 40% margin leaves you with a 28.6% margin and a hole in the budget.
- Forgetting landed cost. Shipping, import duty, packaging and card fees belong in the cost figure. A 50% markup on a cost that is missing 10% of fees is really a 36% markup.
- Marking up the wrong base. Markup is on cost, never on price. Adding 20% to a $100 price and calling it a 20% markup is a different calculation.
- Ignoring returns and discounts. If a fifth of your sales end up discounted, the average markup you achieve is lower than the one on the label.
Related tools
If you start from revenue instead of cost, the profit margin calculator has a mode for that and for pricing from a target margin. For general percentage questions such as "20% off $75", use the percentage calculator.