Published on August 5, 2026
By the PraxisCalc Editorial Team
Markup is the amount added to a product's cost to arrive at its selling price, expressed as a percentage of that cost. It is one of the most commonly misused numbers in small-business pricing, not because the formula is complicated, but because it's routinely confused with a related but different metric — profit margin — leading business owners to set prices lower than they intended.
Markup as a percentage is calculated as: Markup (%) = ((Selling Price − Cost) / Cost) × 100. If an item costs you $75 to produce or acquire and you sell it for $125, your gross profit is $50, and your markup is ($50 / $75) × 100 = 66.67%. The key detail is the denominator: markup is always calculated against cost, not against the selling price.
Profit margin uses the identical $50 profit but divides it by the selling price instead of cost: $50 / $125 = 40% margin. Notice that the same transaction produces a 66.67% markup and only a 40% margin — two very different-looking numbers describing the exact same sale. This is the single most common pricing mistake in retail and services: a business owner hears "aim for a 50% markup" and mistakenly prices as if that meant a 50% margin, which under-prices the product and quietly erodes profitability across every sale. Because markup and margin diverge more as the percentage grows, the gap between them gets larger, not smaller, at higher pricing levels, making the confusion more costly precisely when more money is on the line.
If you know the profit margin you actually need (say, 40% margin to cover overhead and profit goals), the correct way to solve for the selling price is: Selling Price = Cost / (1 − Target Margin). For a $60 cost item and a 40% margin target, that's $60 / (1 − 0.40) = $60 / 0.60 = $100. Note this produces a different, and correct, answer than simply adding 40% to the cost (which would give $84 and only a 28.6% margin) — a textbook example of the markup/margin mix-up costing real profit on every unit sold.
There is no universal "correct" markup percentage; it depends heavily on the industry's typical overhead, inventory risk, and competitive pricing norms. Grocery and high-volume retail often work with markups in the 20-40% range because of thin per-unit margins offset by volume, while specialty retail, restaurants, and services frequently use markups of 100% or more (sometimes called "keystone" pricing, roughly a 2x cost-to-price ratio) to cover higher overhead, spoilage, or labor costs. Comparing your markup only makes sense against businesses in the same category and scale — a markup that's healthy for a boutique retailer could be unsustainable or uncompetitive for a grocery chain, and vice versa.
A markup gives you room to discount without necessarily selling at a loss, but the relationship isn't linear and is worth checking with real numbers before running a promotion. An item marked up 100% (cost $50, price $100) can absorb a 40% discount and still sell above cost ($60, still $10 above the $50 cost), but the same 40% discount on an item marked up only 25% (cost $50, price $62.50) drops the sale price to $37.50 — below cost. Before setting a discount percentage, check it against your actual markup using the Discount Calculator so a promotion doesn't accidentally turn into a loss leader you didn't intend.
Markup (%) = (Selling Price minus Cost) divided by Cost, multiplied by 100. For example, an item that costs $75 and sells for $125 has a markup of 66.67%.
No. Markup is calculated as a percentage of cost, while margin is calculated as a percentage of the selling price. The same dollar profit produces a higher markup percentage than margin percentage, which is a common source of pricing confusion.
Divide the cost by (1 minus the target margin as a decimal). For example, to achieve a 40% margin on a $60 cost item, divide $60 by 0.60, giving a selling price of $100.
Markup and margin describe the same sale from two different denominators, and mixing them up is one of the most common and costly pricing mistakes a business can make. For official small-business pricing and cost guidance, see the U.S. Small Business Administration's business management guidance. Calculate your own numbers instantly with the Markup Calculator, and compare against the related Profit Margin Calculator and Break-Even Calculator.