Questions · Business calculations
How do you calculate markup on cost?
The answer
Markup is profit as a share of the cost price: (selling price − cost) ÷ cost × 100. An item bought for ₹250 and sold for ₹350 has a ₹100 profit and a 40% markup. To set a price from a markup, multiply the cost by (1 + markup).
Markup tells you how much you have added on top of what you paid. It is the quickest way to set a price from a supplier's cost, which is why many purchase desks use it.
The formula
Use the cost before GST you can claim back, and include freight and other costs of bringing the item into the shop.
A worked example
An invented kitchenware shop buys a pressure cooker for ₹250 and sells it for ₹350.
Going the other way, a 40% markup on a ₹250 cost gives a price of ₹250 × 1.40 = ₹350.
The same ₹100 profit is only a 28.6% margin (₹100 ÷ ₹350), because margin divides by the selling price. Both numbers are correct; they answer different questions. Our guide to profit margin vs markup explains when to use each.
Finding the markup for a target margin
If you know the margin you want, convert it to a markup first, using decimals:
| Target margin | Markup needed |
|---|---|
| 20% | 25% |
| 25% | 33.3% |
| 30% | 42.9% |
| 40% | 66.7% |
| 50% | 100% |
A 30% margin needs a 0.30 ÷ 0.70 = 42.9% markup. On the ₹250 cooker that means a price of about ₹357, not the ₹325 you get by adding 30% to the cost.
Common mistakes
- Calling a markup a margin. "30%" on a price list could mean either. Label it.
- Adding a margin percentage to the cost. That gives a lower margin than intended.
- Including GST in the cost or the price. Use figures before tax; see how to calculate GST from an inclusive price to strip it out.
- Ignoring discounts. A markup set on the list price shrinks with every discount given at the counter.
Try your own figures in the margin and markup calculator, and see how to calculate profit margin for the other side of the same profit.
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General information, not legal, tax or financial advice. Published by Chameron Digital.