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Definition

What is Markup?

Profit expressed as a percentage of cost — not the same as margin.

Markup measures profit relative to cost, while margin measures profit relative to revenue. Confusing the two is the single most common pricing mistake in small business: a 50% markup produces only a 33% margin. Pricing to a target margin using a markup formula systematically underprices every sale.

Formula

Markup (%) = (Price − Cost) ÷ Cost × 100

Example

A product costing $10 sold for $15 has a 50% markup — but a 33% margin, because $5 profit ÷ $15 revenue = 33%.

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Related terms

  • Gross Margin — Revenue minus cost of goods sold, expressed as a percentage of revenue.
  • Contribution Margin — Revenue minus variable costs — the amount each unit contributes toward fixed costs and profit.