Pricing is the most important decision you'll make for your business. Get it right, and profits flow naturally. Get it wrong, and no amount of marketing or cost-cutting can save you. Markup is the foundation of profitable pricing — it's the gap between what something costs you and what you sell it for. This guide covers how to calculate markup, how it differs from margin, and how to set prices that sustain your business.
Markup is the amount added to the cost of a product to arrive at its selling price. It's expressed as a percentage of the cost, not the selling price. If a product costs you $40 and you sell it for $60, your markup is $20 — which is 50% of the $40 cost.
Markup covers not just your direct costs but also your overhead (rent, utilities, salaries) and your desired profit. It's how businesses translate cost information into pricing decisions.
Or, to set a selling price from a desired markup:
Your Cost of Goods Sold includes every expense directly tied to producing or acquiring the product:
Your markup should be high enough to cover overhead expenses and generate a profit after all costs are paid. Industry benchmarks help, but your specific situation — competitive landscape, brand positioning, volume — matters more than averages.
Multiply your cost by (1 + markup percentage). Round to a customer-friendly price point if needed ($49.99 instead of $47.83).
A boutique buys a dress from a manufacturer for $25. The target markup is 100%.
Selling Price = $25 × (1 + 1.00) = $25 × 2.00 = $50.00
Profit per unit: $25
A software company's cost to serve one customer per month is $8 (servers + support). They apply a 500% markup.
Selling Price = $8 × (1 + 5.00) = $8 × 6.00 = $48.00/month
This is how software achieves 80%+ gross margins — the incremental cost per user is tiny.
The ingredients for a burger cost $3.50. The restaurant uses a 300% markup (industry standard for food).
Selling Price = $3.50 × (1 + 3.00) = $3.50 × 4.00 = $14.00
This covers the cost of the food plus contributes to rent, wages, utilities, and profit.
This is the single most common pricing mistake businesses make. Markup and margin are not the same thing, and confusing them leads to underpricing and shrinking profits.
| Markup | Margin | |
|---|---|---|
| Base | Calculated on COST | Calculated on SELLING PRICE |
| Formula | (Price − Cost) ÷ Cost | (Price − Cost) ÷ Price |
| Purpose | Setting prices | Measuring profitability |
| Used by | Sales, purchasing | Finance, accounting |
| Markup % | Margin % | Multiplier |
|---|---|---|
| 25% | 20.0% | 1.25× |
| 50% | 33.3% | 1.50× |
| 100% | 50.0% | 2.00× |
| 150% | 60.0% | 2.50× |
| 200% | 66.7% | 3.00× |
| 300% | 75.0% | 4.00× |
Notice how the gap widens as percentages increase. At 300% markup, you're "only" earning a 75% margin. This asymmetry is why mixing them up is so costly at higher price points.
| Industry | Typical Markup | Typical Margin |
|---|---|---|
| Grocery stores | 25–30% | 1–3% |
| Restaurants (food) | 250–350% | 60–70% |
| Restaurants (beverages) | 400–600% | 75–85% |
| Retail clothing | 100–200% | 50–65% |
| Jewelry | 300–500% | 50–80% |
| Software / SaaS | 500–2000% | 70–90% |
| Consulting services | 100–400% | 50–80% |
| Auto parts | 30–50% | 20–35% |
These are starting points, not rules. Your markup should reflect your unique costs, competitive position, and target customer's willingness to pay.
Keystone pricing means applying a 100% markup — doubling the cost. It's the default in many retail sectors because it's simple and historically produced reasonable margins. However, in competitive markets or categories with thin margins (like electronics), keystone pricing may leave you overpriced.
Instead of marking up from cost, you price based on the perceived value to the customer. A software tool that saves a business $50,000/year in labor costs can reasonably charge $10,000/year — even if it only costs $500 to deliver per customer. Value-based pricing often produces higher margins than cost-plus markup.
Set your price relative to competitors, then work backward to determine if the implied margin is sustainable. If a competitor sells for $40 and your cost is $28, your markup is 43% ($12/$28). If that doesn't cover your overhead, you either need to cut costs or differentiate to justify a higher price.
Offer multiple price points (Basic, Pro, Enterprise) with different feature sets. Each tier can have a different markup. The Basic tier might have a low markup to attract customers, while the Enterprise tier has a high markup because business customers value additional features more.
An online markup calculator eliminates math errors and lets you instantly see how different markups affect both your selling price and your profit margin. Most calculators also convert between markup and margin — saving you from the common confusion between the two metrics.
Use one when you're setting initial prices, repricing your catalog, or modeling "what-if" scenarios for new products.
It depends on your industry and costs. For retail, 50–100% is typical. For restaurants, 200–300% on food and 400–600% on beverages. For software, markups can exceed 500% because incremental costs are extremely low.
No. A 100% markup on a $50 cost gives you a $100 selling price and a 50% margin ($50 profit ÷ $100 price). A 100% margin would mean your cost is zero — which is impossible unless you're selling something you got for free.
Use markup when setting prices from cost. Use margin when evaluating profitability after the fact. Finance teams care about margin; sales and purchasing teams care about markup.
Build your discount strategy into your base markup. If you plan to offer 20% off during sales, set your regular markup high enough that the discounted price still maintains your target margin.
Markup is the engine of profitable pricing. Understand your true costs, choose markups that cover overhead and deliver profit, and never confuse markup with margin. Whether you're pricing handmade candles or enterprise software, the math is the same — only the numbers change. Use a markup calculator to eliminate errors, review your pricing regularly, and remember: the best price is the one your customers will pay happily while your business grows sustainably.