The markup formula
Price = Cost × (1 + Markup) Profit = Price − Cost Margin = Profit ÷ Price
A $50 cost with a 40% markup gives a price of 50 × 1.4 = $70, a profit of $20 and a margin of 20 ÷ 70 = 28.6%.
How to price a product step by step
You buy candles for $18 each and want a 60% markup.
- Convert the markup to a decimal: 60% = 0.60.
- Profit per unit: 18 × 0.60 = $10.80.
- Selling price: 18 + 10.80 = $28.80.
- Margin: 10.80 ÷ 28.80 = 37.5% of the selling price is gross profit.
If you would rather sell at a rounder price such as $29.00, enter different markups until the price fits, and check that the margin still covers your other costs.
Markup vs margin
Both use the same profit, but markup divides it by the cost and margin divides it by the selling price. Because price is higher than cost, the margin is always lower than the markup.
Margin = Markup ÷ (1 + Markup) Markup = Margin ÷ (1 − Margin)
| Markup | Margin | Price on a $100 cost |
|---|---|---|
| 10% | 9.09% | $110 |
| 20% | 16.67% | $120 |
| 25% | 20% | $125 |
| 30% | 23.08% | $130 |
| 40% | 28.57% | $140 |
| 50% | 33.33% | $150 |
| 60% | 37.5% | $160 |
| 75% | 42.86% | $175 |
| 100% | 50% | $200 |
| 150% | 60% | $250 |
| 200% | 66.67% | $300 |
Working the other way, a target 20% margin needs a 25% markup, a 30% margin needs about a 42.86% markup and a 40% margin needs about a 66.67% markup.
Common pricing mistakes
- Treating markup as margin. If you need a 40% margin and add a 40% markup, your real margin is only 28.57%.
- Discounting from a thin markup. A 25% markup leaves a 20% margin, so a 20% off sale takes the price back to cost.
- Leaving costs out. Shipping, packaging and payment fees belong in the unit cost if you pay them on every sale.