Accounting
Markup
Markup is the amount added to a product or service’s cost to set its selling price, usually expressed as a percentage of that cost.
How markup works
Markup is how much you add on top of what something costs you. If a part costs $100 and you sell it for $150, that’s a $50 markup, 50% of the cost. Tradespeople and resellers commonly mark up materials to cover handling, overhead, and profit.
To calculate a selling price from a markup: selling price = cost × (1 + markup %). A 40% markup on a $200 cost gives a $280 price.
Markup vs. margin
Markup and margin describe the same dollar of profit measured against different bases. Markup is profit as a percentage of cost; margin is profit as a percentage of the selling price. The same $50 profit on a $100 cost is a 50% markup but a 33% margin.
Mixing them up is a common pricing mistake, a "50% markup" leaves less profit than a "50% margin," so be clear which you mean when setting rates.
Example: A part costs a contractor $100. He applies a 50% markup and bills it at $150 on the invoice. The extra $50 covers handling, overhead, and profit.
FAQs
Frequently asked questions
How do you calculate markup?
Markup % = (selling price − cost) ÷ cost × 100. To go the other way, selling price = cost × (1 + markup %).
What’s the difference between markup and margin?
Markup is profit as a percentage of cost; margin is profit as a percentage of the selling price. The same profit is a higher markup % than margin %.
Related terms
Overhead
Overhead is the ongoing cost of running a business that isn’t tied to a specific product or job, things like rent, software, insurance, and utilities.
Payment terms
Payment terms are the conditions on an invoice that state when payment is due and how it should be made, for example "Net 30" or "Due on receipt."
Invoice
An invoice is a document a seller sends to a buyer that itemizes goods or services provided and requests payment by a stated due date.
Put it into practice
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