Markup calculator

How do you calculate markup?

Markup is profit measured against cost: markup = (selling price - cost) / cost x 100. It answers the question a seller asks when pricing, which is how much to add on top of what the item cost. The calculator opens on an item bought for $60 and sold for $100. The profit is $40, and $40 / $60 x 100 = 66.67%, so the price is the cost plus two thirds.

The same $40 measured against the $100 price is a 40% margin. That is the difference this page is built around. Margin looks back from the price you charged, which is why the profit margin calculator works from revenue and an income statement. Markup looks forward from the cost, which is why this page asks for the cost first and gives you a price.

How do you set a selling price from a markup?

Multiply the cost by one plus the markup: price = cost x (1 + markup). A 50% markup on the $60 default cost gives $60 x 1.5 = $90, which is a 33.33% margin on that price.

An example in pounds: a retailer buys a candle for £12.00 and marks it up 150%, so the price before VAT is £12.00 x 2.5 = £30.00 and the margin is 60%. Selling to consumers in the UK it adds VAT at the standard 20%, so the shelf price is £30.00 x 1.2 = £36.00. Choose Target markup, switch on Prices include sales tax or VAT and enter 20% to see both prices and the table of alternatives under the result.

How do you price for a target margin?

Divide the cost by one minus the margin: price = cost / (1 - margin). A 40% margin on a $60 cost needs a price of $60 / 0.60 = $100, a markup of 66.67%. The division is what trips people up: a margin can never reach 100%, because the price would have to be infinite, and as the margin climbs toward it the price climbs very fast. A 90% margin needs a markup of 900%.

A dirham example: a wholesaler in the UAE wants a 25% margin on an item costing AED 80. The price is AED 80 / 0.75 = AED 106.67, a markup of 33.33%. With VAT at 5% the invoice price is AED 106.67 x 1.05 = AED 112.00.

Markup to margin conversion table

The two measures are linked by margin = markup / (1 + markup) and markup = margin / (1 - margin), with both written as decimals. Some common pairs:

Markup is always the bigger figure whenever there is a profit, and the gap widens as prices rise. The Convert tab above works out any pair, and the curve under the result plots the whole relationship.

Why is a 40% markup not a 40% margin?

Because the 40% is taken of different amounts. Suppose a business wants a 40% margin on the $60 item and simply adds 40% to cost. It charges $60 x 1.4 = $84, and the profit of $24 is only 28.57% of that price. To earn a real 40% margin it needed to charge $100, so the shortcut leaves $16 of profit behind on every item sold.

The error runs the other way too. Someone quoting a 66.67% markup and someone quoting a 40% margin on this item are describing the same $40 of profit. Before comparing two percentages, check whether each one is measured against cost or against price.

How do you calculate markup in Excel or Google Sheets?

Put the cost in A2, the selling price in B2 and a target percentage in C2, formatted as a percentage:

• Markup from cost and price: =(B2-A2)/A2, which returns 66.67% for the default figures.
• Margin from cost and price: =(B2-A2)/B2, which returns 40%.
• Price from a markup in C2: =A2*(1+C2); with 50% in C2 it returns 90.
• Price from a margin in C2: =A2/(1-C2); with 40% in C2 it returns 100.
• Markup to margin: =C2/(1+C2); margin to markup: =C2/(1-C2).

To strip VAT or sales tax from a price in B2 before any of these, use =B2/(1+rate), for example =B2/1.2 at 20%. Google Sheets accepts every formula above unchanged.

What if my prices include VAT or sales tax?

Take the tax out before working out markup or margin, since the tax is passed on to the government and is not part of your profit. In the UK most goods carry VAT at 20%, so a £120 shelf price is £100 to the seller. On a £60 cost that is a 66.67% markup. Working from the £120 instead would suggest a 100% markup, which overstates it by a third of the cost.

In the UAE VAT is 5%, so divide a tax-inclusive price by 1.05. US general sales tax is levied by states and localities on retail sales, so a US price that includes it comes out the same way, using the local rate. Switch on Prices include sales tax or VAT and enter the rate that applies to the item; the calculator does not hold tax tables.

Markup in cost accounting: cost-plus pricing

In management accounting, a markup is applied to a cost base the business chooses, and the choice changes the answer. With marginal cost-plus pricing the markup goes on variable cost only, so it has to be large enough to cover fixed overheads as well as profit. With full cost-plus pricing, fixed overhead is first absorbed into the unit cost, and a smaller markup covers profit alone.

Take the $60 item as its variable cost and suppose fixed overhead is absorbed at $15 a unit, a full cost of $75. A $100 price is then a 66.67% markup on marginal cost but only 33.33% on full cost. A full cost-plus price with a 20% markup would be $75 x 1.2 = $90. Enter whichever cost base you use as Cost per item; to see whether the resulting price covers fixed costs at your expected volume, try the break-even calculator.

Common mistakes, what the calculator leaves out, and a glossary

• Adding the target margin to cost, as in the $84 example above.
• Marking up a price that already includes tax.
• Leaving costs out of the base, such as delivery, card fees or packaging, so the markup looks higher than the profit it brings.
• Applying one markup across products whose costs behave differently.
• Quoting a percentage without saying what it is of.

The calculator works on one item at a time with the figures you give it. It does not estimate demand, so it cannot say whether a price will sell, and it ignores discounts, returns and volume pricing. Treat the result as arithmetic on your costs, not as a price the market will accept.

Markup: profit as a percentage of cost. Margin: profit as a percentage of the selling price. Cost-plus pricing: setting a price by adding a markup to a unit cost. Marginal cost: the variable cost of one more unit. Full cost: variable cost plus a share of fixed overhead. Tax-inclusive price: a price with VAT or sales tax already added.

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