Markup Calculator

Background.

You pay a supplier $80 for a lamp and put it on the shelf at $100. Ask the buyer what the lamp earns and she will say 25 percent. Ask the bookkeeper and he will say 20 percent. Both are right about the same $20. Markup measures that $20 against the $80 you paid; gross margin measures it against the $100 the customer paid. Since the price is the larger number whenever a sale makes money, markup always comes out higher than margin for the same item.

The gap between the two widens quickly. A 50 percent markup is a 33.33 percent margin; doubling the cost, a 100 percent markup, gives a 50 percent margin; and a 400 percent markup still only reaches 80. Mixing them up costs money in one direction in particular. If a lender, a franchise agreement or your own business plan calls for a 40 percent gross margin and you add 40 percent to an $80 cost, you charge $112 and earn a margin of 28.57 percent. The price that actually delivers 40 percent is $133.33, so every unit sold at $112 leaves $21.33 behind.

Enter any two of cost, selling price and markup and the third is filled in, with the gross margin and the profit per unit reported beside it. Cost means landed cost — what one unit cost you delivered to your door, including freight and import duty — and the selling price is the amount before sales tax or VAT, because tax collected on the government's behalf is not revenue. The arithmetic assumes the item sells at or above cost; a price below cost is refused rather than turned into a negative markup.

What is markup calculator?

Markup is gross profit expressed as a percentage of cost: (price − cost) ÷ cost × 100. Gross margin is the same profit expressed as a percentage of the selling price: (price − cost) ÷ price × 100. The dollar gap in the numerator is identical; only the base differs. Because the two share a numerator, one converts to the other without knowing any prices at all: margin = markup ÷ (1 + markup), and markup = margin ÷ (1 − margin), with both written as decimals. The asymmetry follows from the bases. Cost can be tiny next to price, so markup has no ceiling — a $0.50 component sold for $50 carries a 9,900 percent markup. Margin can approach 100 percent but never reach it, since that would need a cost of zero; the same $0.50 part earns a 99 percent margin. Retailers build prices upward from cost, which is why buyers think in markup. Income statements start from revenue and subtract the cost of goods sold, which is why accountants, lenders and investors think in margin.

How to use this calculator.

1. 01Choose what to solve for. Pick Markup when you know both the cost and the price, Selling Price when you know the cost and the markup you want to add, and Cost when you know a shelf price and the markup the seller takes and want the cost it implies.
2. 02Enter the cost per unit as landed cost: the supplier's price plus inbound freight, import duty and any brokerage, spread across the units in the shipment. Leave out rent, wages and advertising — those are paid out of gross profit, not before it.
3. 03Enter the selling price without sales tax or VAT. If your shelf price includes VAT, strip it out first; at a 20 percent rate, divide the tax-inclusive price by 1.2.
4. 04Type markup as a percentage of cost — 25 for 25 percent, not 0.25. If you were handed a target margin instead, convert it with markup = margin ÷ (1 − margin), or use the conversions listed in the questions below.
5. 05Read the gross margin next to the markup before quoting either figure to anyone else, and say which one you mean.

The formula.

Three relationships tie the inputs together. With P the selling price and C the cost, profit = P − C, markup = (P − C) ÷ C and margin = (P − C) ÷ P.

Solving for price rearranges the markup definition: P = C × (1 + markup), so a $50 cost at a 60 percent markup sells for $80. Solving for cost runs it backwards: C = P ÷ (1 + markup), so a $120 price carrying a 50 percent markup implies an $80 cost. In every mode the margin is then worked out from the completed pair of prices.

The conversion between the two percentages comes from dividing the top and bottom of the margin formula by C: (P − C) ÷ P = [(P − C) ÷ C] ÷ [P ÷ C] = markup ÷ (1 + markup). Inverting it gives markup = margin ÷ (1 − margin), and one more rearrangement gives the price that produces a chosen margin directly: P = C ÷ (1 − margin). That last form is the one to reach for when someone hands you a margin target, because it skips an intermediate markup that would have to be rounded.

Markups along a supply chain multiply rather than add. Each seller's price is the previous price times (1 + markup), so a 50 percent wholesale markup followed by a 100 percent retail markup multiplies the factory cost by 1.5 × 2 = 3: a 200 percent markup overall, not 150.

Money comes back to the cent and percentages to two decimal places. Cost must be above zero, since markup divides by it; markup can run from 0 to 10,000 percent; and when solving for markup, a price below cost is rejected, so loss-making prices have to be worked by hand.

A worked example.

Frequently asked questions.

References& sources.

1. [1]Brealey, Richard A.; Myers, Stewart C.; Allen, Franklin — Principles of Corporate Finance, 13th ed., McGraw-Hill, chapters on financial analysis and pricing (gross margin, markup-margin algebra, and the relationship between cost structure and pricing decisions).
2. [2]Kotler, Philip; Keller, Kevin Lane — Marketing Management, 15th ed., Pearson, chapter on pricing strategies (markup pricing, keystone pricing, target-return pricing, and the markup-vs-margin distinction).
3. [3]National Retail Federation — Retail industry benchmark reports and annual State of Retail data (industry-level gross margin benchmarks for apparel, grocery, specialty, and big-box retail).
4. [4]Harvard Business Review — Pricing strategy article series, including 'The Power of Pricing' (Marn & Rosiello) and the HBR Pricing collection (markup-to-margin conversion tables, reverse-pricing methodology, and willingness-to-pay frameworks).
5. [5]U.S. Census Bureau — Annual Retail Trade Survey (ARTS), gross margin and gross margin percentage by NAICS retail sector (the authoritative U.S. dataset for industry-level retail margin benchmarks).
6. [6]Horngren, Charles T.; Datar, Srikant M.; Rajan, Madhav V. — Cost Accounting: A Managerial Emphasis, 16th ed., Pearson, chapter 11 (cost-plus pricing, target costing, and the markup-margin identity).