When to use the markup calculator
Markup is how many businesses build a price: start from what an item costs you and add a percentage on top. Use the calculator to check the markup on the prices you charge now, or to set a price from a cost and the markup you want. The markup here covers one item only, before rent, wages and your other running costs.
Markup and margin are not the same
Markup divides the profit on a sale by the cost. Margin divides the same profit by the selling price. On any profitable sale the cost is smaller than the price, so the markup percentage is always higher than the margin.
Say an item costs you 100 and you sell it for 150. The profit is 50. As a markup that is 50%, because 50 is half the 100 cost. As a margin it is about 33.3%, because 50 is a third of the 150 price. Both figures describe the same sale. When a supplier, buyer or adviser talks about margin, check which one they mean. Margin vs markup sets the two side by side.
How to use the two modes
- I know the price and the cost gives your markup, with the margin and the profit per item alongside it.
- I know the cost and the markup I want gives the selling price, plus the margin that markup produces. Use it to price a new product, or to see what a markup you always use means as a margin.
Markup has no upper limit. A 100% markup doubles the cost, and a 200% markup makes the price three times the cost. Margin, by contrast, always stays below 100%. To work back from a fixed price to the most you can pay for an item, use the margin calculator, which has a mode for that.
Reading the result
A markup of 50% means the price is one and a half times the cost. A negative markup means you sell below cost and lose money on every sale. A markup that looks generous can still leave little profit once rent, wages and other running costs are paid, so judge it against those costs rather than on its own. The markup that works for you depends on your product, your market and how quickly items sell.
Common pricing mistakes
- Quoting a markup when someone asked for a margin, or the reverse. A 50% markup is a margin of about 33.3%.
- Working back from a price by taking the markup percentage off it. A 50% markup took a cost of 100 to 150, but taking 50% off 150 gives 75, not 100. To find the cost, divide the price by one plus the markup.
- Leaving costs out of the item cost, such as inbound shipping or packaging, so the markup is applied to too low a figure.
- Forgetting that discounts come off the price, not the cost. On the item above, a 10% discount cuts the price to 135 and the profit from 50 to 35.
Related tools
Gross profit margin measures margin for a whole business, using total sales and the cost of goods sold. The break-even calculator shows how many units you need to sell at your chosen price to cover fixed costs such as rent and salaries.