Price from cost and markup
Markup is your profit as a share of what the item cost you. Add it to the cost to get the price: $200 at a 40% markup is 200 × 1.40 = $280, and the $80 on top is the gross profit. To work backwards from a price, divide by (1 + markup%).
Markup and margin are the same profit, measured against different bases
This is the trap. Markup divides profit by cost; margin divides the same profit by the selling price. Cost is the smaller number, so markup is always the larger percentage. Aiming for a "50% markup" when you meant a 50% margin quietly costs you a third of the profit you planned for.
Cost $80, price $120, profit $40: 40 ÷ 80 = 50% markup, but 40 ÷ 120 = 33.3% margin. Same $40, two numbers.
Markup and the margin it really gives you
| Markup | Margin | Markup | Margin |
|---|---|---|---|
| 10% | 9.1% | 75% | 42.9% |
| 20% | 16.7% | 100% | 50.0% |
| 25% | 20.0% | 150% | 60.0% |
| 33.3% | 25.0% | 200% | 66.7% |
| 50% | 33.3% | 300% | 75.0% |
Keystone pricing — doubling the wholesale cost — is a 100% markup, which is only a 50% margin. To hit a target margin, divide the cost by (1 − margin) rather than adding the percentage on.
Common questions
How do I calculate selling price from cost and markup?
Multiply the cost by one plus the markup as a decimal. Cost $200 with a 40% markup: 200 times 1.40 = $280. The $80 added is your gross profit.
What is the difference between markup and margin?
They share the same cash profit but divide it by different things. Markup divides profit by the cost; margin divides it by the selling price. Because cost is smaller, markup always comes out as the higher percentage.
Why is a 50% markup not a 50% profit margin?
A 50% markup on $100 of cost gives a $150 price, and $50 of profit on $150 is a 33.3% margin. For a true 50% margin you need a 100% markup, which means doubling the price.
