Markup is a simple yet essential calculation used to set the selling price of products based on their purchasing cost. It refers to the difference between the product's cost and its selling price, usually expressed as a percentage of the cost.
To calculate markup, you first subtract the cost price from the selling price:
Markup = Selling Price – Cost Price
You then convert this markup into a percentage to more clearly express the difference in pricing:
Markup Percentage = (Markup / Cost Price) × 100
For example, if you purchase a product for $40 and sell it for $60, your markup is $20. To express this as a percentage:
This indicates you added a markup of 50% above your cost price when selling your product.
This approach ensures profitability by systematically accounting for product costs when pricing. Markup calculation is straightforward, widely used across industries, and consistently helps businesses maintain healthy profit margins on their goods or services.
Understanding markup helps businesses set competitive yet profitable pricing strategies, a crucial element for sustainable growth and financial health.
