Selling price from cost and markup.
Markup (%) = ((Selling Price − Cost) / Cost) × 100
Markup percentage is calculated by dividing the profit (selling price minus cost) by the cost price, then multiplying by 100. This tells you what percentage above cost you are charging. If you know your desired gross margin instead, you can derive markup using the margin-to-markup conversion formula below.
Markup from Cost and Selling Price:
Markup % = ((Selling Price − Cost) / Cost) × 100
Markup from Gross Margin:
Markup % = (Margin % / (100 − Margin %)) × 100
Markup % = ((60 − 40) / 40) × 100 = (20 / 40) × 100 = 50%
Result: Markup = 50% | Gross Profit = $20.00 | Gross Margin = 33.33%
With a cost of $40 and a selling price of $60, you are adding $20 above cost. This represents a 50% markup on cost. Note that the gross margin for this same transaction is only 33.33% — because margin is calculated as a share of the selling price ($20 ÷ $60), not the cost. This is a classic illustration of why markup and margin are not the same number and should not be used interchangeably.
One of the most common pricing mistakes in business is confusing markup with gross margin. Both measure profitability, but they use different bases:
Because the selling price is always higher than the cost, a given dollar profit will always produce a higher markup percentage than margin percentage. For example, a 50% markup corresponds to only a 33.33% margin.
| Markup % | Gross Margin % | |----------|---------------| | 20% | 16.67% | | 25% | 20.00% | | 50% | 33.33% | | 100% | 50.00% | | 200% | 66.67% |
To convert: Margin = Markup / (1 + Markup) and Markup = Margin / (1 − Margin) (using decimals).
Markup is the foundation of cost-plus pricing, one of the most widely used pricing strategies. By applying a consistent markup percentage to all products, businesses can ensure that every sale contributes to covering overhead and generating profit. Industries like retail, manufacturing, and wholesale each have typical markup benchmarks — retail markups often range from 50% to 100%+, while grocery margins can be much thinner.
Markup calculations are estimates based on direct cost inputs. Actual profitability depends on fixed costs, operating expenses, taxes, discounts, and other factors not captured in this formula.
Use the formula: Selling Price = Cost / (1 − Margin). So Selling Price = $25 / (1 − 0.40) = $25 / 0.60 = $41.67. The markup on this would be ($41.67 − $25) / $25 × 100 = 66.67%.
Rearrange the markup formula: Cost = Selling Price / (1 + Markup % / 100). For example, if selling price is $150 and markup is 50%, Cost = $150 / 1.50 = $100.
Yes. Service businesses calculate markup on their direct labor and material costs. For example, a contractor might mark up materials by 20% and bill labor at a rate that reflects a markup on their base hourly cost.
Keystone markup is a retail pricing strategy where the selling price is exactly double the wholesale cost — a 100% markup (50% gross margin). It was historically common in retail as a simple rule of thumb for profitability.
Markup is profit divided by cost, while margin is profit divided by selling price. Because cost is always lower than selling price, the same dollar profit produces a higher markup % than margin %. A 50% markup equals a 33.33% gross margin.
Use the formula: Markup % = (Margin % / (100 − Margin %)) × 100. For example, a 40% margin gives a markup of (40 / 60) × 100 = 66.67%.
It depends on the industry. Retail businesses commonly use 50%–100% markup. Restaurants often mark up food items 300%+. Software and digital products may have even higher markups due to near-zero marginal cost. Compare against your industry's standard gross margin benchmarks.
Yes. A 100% markup means you doubled the cost (selling price = 2× cost, gross margin = 50%). Markups above 100% are common in industries like jewelry, luxury goods, and pharmaceuticals.
In cost-plus pricing, a business calculates the total cost of a product and adds a fixed markup percentage to arrive at the selling price. This ensures every unit sold contributes to profit, but it ignores market demand and competitor pricing.
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