The markup formula
Markup is the amount you add on top of what something cost you, shown as a share of that cost. The calculator uses three simple formulas:
- Selling price = cost x (1 + markup / 100)
- Markup % = (price - cost) / cost x 100
- Gross margin % = (price - cost) / price x 100
Pick "I know the markup" when you are setting a new price. Pick "I know the price" when you want to check what an existing price is really earning.
A worked example
A shop buys a desk lamp for $50 and wants a 60% markup. The selling price is 50 x 1.6, which is $80. The profit on each lamp is $30. That $30 is 60% of the cost but only 37.5% of the price, so the gross margin is 37.5%.
The gap between those two numbers trips up a lot of owners. If a supplier or investor asks for your margin and you quote your markup, you will overstate your profit by a wide distance. At a 100% markup the margin is only 50%.
Markup and margin side by side
| Markup | Margin |
|---|---|
| 25% | 20% |
| 50% | 33.3% |
| 75% | 42.9% |
| 100% | 50% |
| 200% | 66.7% |
Getting the cost right
The markup is only as good as the cost you feed in. Use the full landed cost of one unit, not just the supplier invoice. Add inbound shipping, import duty, packaging, card processing fees and any platform commission that scales with each sale. Fixed costs such as rent and wages do not belong here. They are paid out of the gross profit, which is why a markup that looks healthy can still leave a business short at the end of the month.
Prices also need to make sense to the buyer. Once you have a number, compare it with what rivals charge for the same thing. If your price sits far above theirs, look for a cheaper supplier before you cut the markup.
