Markup
Markup is the amount added to a product’s cost to set its selling price, often expressed as a percentage of cost.
What is Markup?
Markup is a pricing relationship. It starts with a cost base and asks how much has been added above it. That makes it different from margin, which measures the surplus as a share of the selling price.
An ecommerce operator might use markup when building an initial price list. The calculation does not prove that customers will accept the price or that the final sale will cover shipping, fees, acquisition and overhead. It describes the price relative to the chosen cost.
Markup (%) = (Selling price − Cost) ÷ Cost × 100
Selling price = cost × (1 + markup as a decimal). Use a positive cost base and an actual selling price excluding sales tax collected for authorities.
A 50% markup is a 33.3% margin
A store buys a lamp for $40 and sells it for $60. The $20 difference is a 50% markup because $20 ÷ $40 = 50%. The same $20 is only 33.3% of the selling price. That is the gross margin when the $40 cost is the complete COGS.
How to interpret it
Markup makes cost-based price construction easy to communicate. “Add 50% to cost” is a clear arithmetic rule. It does not mean the store retains half of its revenue, and it does not mean the price has a 50% profit margin.
Keep the cost base consistent. Supplier invoice cost and landed inventory cost can differ because of freight or import costs. Applying the same percentage to different bases produces different prices even when both calculations are mathematically correct.
Discounts change realized markup. If the lamp is sold for $54 during a promotion, the surplus becomes $14 and the markup falls to 35%. A list-price markup should therefore remain separate from the markup actually achieved on sales.
Common mistakes
Using the target margin as the markup
To earn a 50% gross margin on a $40 cost, the selling price would be $80, not $60. Cost and revenue are different denominators.
Assuming the addition is all profit
Costs outside the chosen product-cost base still need funding. Markup is a useful pricing input, but contribution and net profit answer broader profitability questions.