What Is Markup?
Markup is the amount added to the cost of a product to determine its selling price, expressed as a percentage of the cost. A 50% markup on a $40 cost means adding $20 to get a $60 selling price. Markup is one of the most common pricing methods used by retailers, wholesalers, and manufacturers.
While markup is excellent for setting prices, it is frequently confused with margin. Understanding the difference is critical: a 50% markup produces only a 33.3% margin. Using markup when you meant margin (or vice versa) is one of the most common pricing errors in business.
Markup is based on COST: (Selling Price - Cost) / Cost. Margin is based on SELLING PRICE: (Selling Price - Cost) / Selling Price. A 62.5% markup on $40 cost = $65 price = 38.5% margin. They measure the same profit but against different bases.
Markup Formulas
- 1Profit per unit = $65 - $40 = $25
- 2Markup = ($25 / $40) × 100 = 62.5%
- 3Equivalent Margin = $25 / $65 = 38.5%
- 4Total Profit = $25 × 100 = $2,500
- 5At 50% target markup: Price = $40 × 1.50 = $60
Markup to Margin Conversion Table
| Markup % | Margin % | Cost $40 → Price | Profit |
|---|---|---|---|
| 15% | 13.0% | $46.00 | $6.00 |
| 25% | 20.0% | $50.00 | $10.00 |
| 33.3% | 25.0% | $53.33 | $13.33 |
| 50% | 33.3% | $60.00 | $20.00 |
| 75% | 42.9% | $70.00 | $30.00 |
| 100% | 50.0% | $80.00 | $40.00 |
| 150% | 60.0% | $100.00 | $60.00 |
| 200% | 66.7% | $120.00 | $80.00 |
Common Markup Strategies by Business Type
- Grocery/Supermarket: 5-25% markup on staples, 50%+ on specialty items
- Clothing Retail: 100-250% markup (keystone to triple keystone)
- Restaurants: 200-400% on food, 400-600% on beverages
- Jewelry: 100-300% depending on material and brand
- Electronics: 10-40% markup with thin margins
- Furniture: 200-400% markup at retail from manufacturer cost
- Professional Services: 100-300% on labor cost (billable rate vs. salary)
How to Set the Right Markup
Keystone Pricing and Beyond
Keystone pricing is a 100% markup (doubling the cost), which produces a 50% margin. This has been the traditional standard in retail for decades. However, many modern retailers use variable markup strategies, applying higher markups to exclusive or trending items and lower markups to commodity products that drive traffic.
If your accountant says you need a 40% margin and you apply a 40% markup, you will underperform your target. A 40% markup yields only a 28.6% margin. For a true 40% margin, you need a 66.7% markup. Always verify which metric is being discussed.
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