Markup Calculator
Calculate selling price, markup, and profit margin.
Understanding Markup vs. Margin: Essential Business Math
Markup and margin are two fundamental concepts in business pricing, yet they're often confused. Both measure profitability, but they use different reference points. Understanding the distinction is crucial for setting profitable prices, analyzing business performance, and making informed decisions. This markup calculator helps you determine selling prices and understand the relationship between cost, markup, and profit margin.
Markup vs. Margin: The Key Difference
Markup
Definition: Profit as a percentage of COST
Formula:
Markup % = (Selling Price - Cost) / Cost × 100
Example: Cost $50, Sell $75
Markup = ($75 - $50) / $50 × 100 = 50%
Margin
Definition: Profit as a percentage of SELLING PRICE
Formula:
Margin % = (Selling Price - Cost) / Selling Price × 100
Example: Cost $50, Sell $75
Margin = ($75 - $50) / $75 × 100 = 33.33%
Markup to Margin Conversion Table
| Markup % | Margin % | Example (Cost $100) |
|---|---|---|
| 10% | 9.09% | Sell for $110, profit $10 |
| 25% | 20.00% | Sell for $125, profit $25 |
| 33% | 25.00% | Sell for $133, profit $33 |
| 50% | 33.33% | Sell for $150, profit $50 |
| 66% | 40.00% | Sell for $166, profit $66 |
| 75% | 42.86% | Sell for $175, profit $75 |
| 100% | 50.00% | Sell for $200, profit $100 |
| 150% | 60.00% | Sell for $250, profit $150 |
| 200% | 66.67% | Sell for $300, profit $200 |
| 300% | 75.00% | Sell for $400, profit $300 |
Conversion Formulas
Convert Markup to Margin:
Margin = Markup / (1 + Markup)
Convert Margin to Markup:
Markup = Margin / (1 - Margin)
Typical Markup Percentages by Industry
| Industry | Typical Markup | Typical Margin | Notes |
|---|---|---|---|
| Restaurants | 200-400% | 60-75% | High overhead costs, food waste |
| Jewelry | 100-300% | 50-75% | Luxury positioning, high rent |
| Clothing Retail | 100-150% | 50-60% | Seasonal variations, markdowns |
| Furniture | 100-200% | 50-66% | Showroom costs, delivery |
| Coffee Shops | 300-500% | 75-83% | Convenience premium, ambiance |
| Pharmaceuticals | 200-5000% | 66-98% | R&D costs, regulations |
| Grocery Stores | 10-30% | 9-23% | High volume, low margin |
| Electronics Retail | 10-40% | 9-29% | Competitive market, rapid obsolescence |
| Automotive Dealerships | 5-15% | 5-13% | New cars; used cars higher |
| Software/SaaS | 400-900% | 80-90% | Low marginal cost, high development |
| Construction | 15-30% | 13-23% | Materials plus labor markup |
| Bars/Alcohol | 200-500% | 66-83% | Very high markups on alcohol |
Setting Your Markup: Key Considerations
Factors That Should Influence Your Markup
- Cost of Goods Sold (COGS): Direct cost to produce or acquire product
- Operating expenses: Rent, utilities, salaries, marketing, insurance
- Desired profit: How much profit you need/want to make
- Market competition: What competitors charge
- Value perception: What customers believe product is worth
- Sales velocity: Higher volume can support lower markup
- Product lifecycle: New products may command higher markup
- Inventory costs: Storage, obsolescence risk, carrying costs
- Payment terms: Credit card fees, payment processing
- Warranty/returns: Expected costs of returns and warranty claims
Pricing Strategies Beyond Simple Markup
Value-Based Pricing
Price based on the value delivered to customer, not just cost plus markup. A $50 software tool that saves $500/month in labor can be priced at $200+, regardless of development cost.
Competitive Pricing
Set prices based on competitor pricing. You might accept lower markup to match or undercut competitors, or charge premium with higher markup if you offer superior value.
Psychological Pricing
Price at $19.99 instead of $20.00, or $97 instead of $100. The perceived difference is larger than the actual $0.01 or $3.
Tiered Pricing
Offer good/better/best options with different markups. Premium tier often has highest margin.
Loss Leaders
Sell some products at or below cost (0% or negative markup) to attract customers who will buy other higher-margin items.
Dynamic Pricing
Adjust markup based on demand, time of day, inventory levels, or customer segment (airlines, hotels, Uber surge pricing).
Calculating Minimum Required Markup
To ensure profitability, calculate the minimum markup needed to cover all costs:
Step 1: Calculate total operating expenses per month
(Rent + Salaries + Utilities + Marketing + Insurance + etc.)
Step 2: Estimate monthly sales volume
(Number of units you expect to sell)
Step 3: Calculate required profit per unit
(Total Expenses / Expected Units)
Step 4: Calculate minimum markup
(Required Profit per Unit / Cost per Unit) × 100
Step 5: Add desired profit margin
(Your target profit on top of break-even)
Example:
- Monthly expenses: $10,000
- Expected sales: 500 units
- Required profit per unit: $10,000 / 500 = $20
- Cost per unit: $30
- Minimum markup: ($20 / $30) × 100 = 66.67%
- Break-even selling price: $30 + $20 = $50
Common Markup Mistakes to Avoid
Critical Errors:
- Confusing markup with margin: Can lead to underpricing by 50%+
- Ignoring all costs: Only considering COGS, forgetting overhead
- Using industry averages blindly: Your costs may differ significantly
- Not accounting for waste/shrinkage: Especially in food, retail
- Forgetting payment processing fees: 2-3% cost on credit cards
- Neglecting promotional pricing: Frequent sales reduce effective markup
- Race to the bottom: Competing on price alone erodes margins
- Not revisiting pricing: Costs change; prices should too
Markup in Different Business Models
Retail Markup
Retailers buy wholesale and sell retail. Typical markup of 50-100% (keystone markup = 100%, or doubling the cost).
Manufacturing Markup
Manufacturers calculate COGS including materials, labor, and overhead, then add markup. Often 30-50% depending on industry.
Service Business Markup
Service businesses markup labor costs. Common to charge 2-3× the employee's fully-loaded cost (salary + benefits + overhead).
Wholesale Markup
Wholesalers operate on lower margins (15-30%) but higher volumes.
Advanced Considerations
Keystone Pricing
Traditional retail strategy of 100% markup (doubling the wholesale cost). Simple but may not be optimal for all products.
Multiple Markup Method
Apply different markups to different product lines based on competition, demand, and positioning.
Contribution Margin
Revenue minus variable costs. More useful than gross margin for decision-making when you have significant fixed costs.
Break-Even Analysis
Determine the sales volume needed at your markup to cover all fixed costs. Essential for new products and businesses.
Best Practices for Profitable Pricing
- Calculate true total cost including ALL expenses
- Understand the difference between markup and margin
- Review and adjust pricing quarterly
- Track margin by product/service line
- Consider value to customer, not just cost to you
- Don't compete on price alone; differentiate on value
- Test different price points to find optimal markup
- Factor in payment terms and collection time
Quick Reference
Common Markups:
- 50% markup: Sell for 1.5× cost
- 100% markup: Sell for 2× cost
- 200% markup: Sell for 3× cost
Quick Calculations:
- Cost $50, Markup 50% = $75 selling price
- Cost $50, Markup 100% = $100 selling price
- Cost $50, Markup 200% = $150 selling price
Rule of Thumb
Keystone Pricing:
Double your cost = 100% markup = 50% margin
Triple Markup:
3× cost = 200% markup = 66.67% margin