Markup

In one sentence: Markup says how much a seller adds on top of what an item cost, measured as a share of that cost.

$\text{Markup} = \frac{\text{Price} - \text{Cost}}{\text{Cost}}$

Read it out loud: “Markup equals price minus cost, divided by cost. Price is what the customer pays. Cost is what the seller paid to make or buy the item. Markup is the extra money added on top, written as a share of the cost.”

Before you start

The ideas and signs this page uses, explained from zero. For powers of ten, Greek letters and other notation in general, see Math basics.

Fractions and the fraction bar: A fraction is one number divided by another. The line between the two numbers is the fraction bar, and it means divide. So $\frac{1}{2}$ means 1 divided by 2, which is 0.5, half of one whole. When the top number is bigger than the bottom one, as in $\frac{3}{2}$ , the answer is more than one whole, here 1.5.
Decimals and percentages: A decimal is a number with a dot in it, such as 0.5. A percentage is a number out of 100, written with the percent sign. To turn a decimal into a percentage, multiply by 100, so 0.5 becomes 50%. To turn a percentage into a decimal, divide by 100, so 50% becomes 0.5.
Price, cost and profit: Money on this page is measured in dollars. The price is what a customer pays for an item. The cost is what the seller paid to make or buy that item. The profit on one sale is the price minus the cost, the money the seller keeps from that sale after paying for the item.
Ratio: A ratio compares two amounts by dividing one by the other. Markup is a ratio of profit to cost. When the units on top and bottom are the same, such as dollars divided by dollars, the units cancel and the answer is a plain number that can be read as a share.

What each symbol means

Symbol	Meaning
$\text{Markup}$	Markup, the extra amount added on top of the cost, written as a share of the cost. It has no unit, because it is a ratio of dollars to dollars. A markup of 0.5 is the same as 50%, which is read as 50 percent.
$\text{Price}$	Price, what the customer pays for the item, measured in dollars. A cup of coffee that sells for 3 dollars has a price of 3 dollars. The price is the total the seller receives for one item.
$\text{Cost}$	Cost, what the seller paid to make or buy the item, measured in dollars. For a cup of coffee the cost covers the beans, the milk, the cup and the lid. The cost is the base that the markup is measured from.

The formula piece by piece

$\text{Price} - \text{Cost}$: Start with the profit on one item. Subtracting the cost from the price gives the extra money the seller collects above what the item cost. If a cup costs 2 dollars and sells for 3 dollars, the subtraction gives 1 dollar of extra money on that cup.
$\frac{\text{Price} - \text{Cost}}{\text{Cost}}$: Divide that extra money by the cost. Dividing by the cost measures the extra money as a share of what the item cost, so the answer tells us how much was added on top of the cost. Dividing by the price instead gives the margin, which is a different number.
$\text{Markup} = \frac{\text{Price} - \text{Cost}}{\text{Cost}}$: The whole formula in one sentence: the markup equals the price minus the cost, divided by the cost. Nothing else appears on the right side, so the markup depends only on those two amounts.
$\text{Price} = \text{Cost} \times (1 + \text{Markup})$: The same rule turned around to find a price. Multiply the cost by one plus the markup. The 1 stands for the cost itself, and the markup is the extra part added on top, so the two together give the price.

What the formula is doing, and why

A seller buys or makes an item for its cost, then sells it for its price. The difference between them is the extra money, the profit on that item. Markup asks one specific question: how big is that extra money compared with what the item cost? The formula divides the extra money by the cost, so the answer is a share of the cost, such as 0.5 or 50%.

Why subtract? The extra money is found by taking the cost away from the price. The cost is the money that went out to get the item ready, and the price is the money that came in when it was sold. Subtracting leaves only the part that is left over for the seller.

Why divide by the cost? Dividing by the cost turns the extra money into a share of the cost. If the cost is 2 dollars and the extra money is 1 dollar, the markup is one half of the cost, which is 50%. A bigger cost with the same extra money gives a smaller markup, because the same dollar is a smaller share of a bigger base.

Why markup and margin differ. Margin divides the same extra money by the price instead of the cost. The same 1 dollar of profit on a 3 dollar price is a 33.3% margin but a 50% markup on a 2 dollar cost. Both numbers are correct, but they answer different questions, so always check which one a text is using.

A seller who starts from the cost and chooses a markup can work out the price the customer pays. That is why the formula also runs in the other direction, from the cost and the markup to the price.

An everyday picture

Think of a lemonade stand. A cup of lemonade costs the seller 0.50 dollars in lemons, sugar and cup, and it sells for 1 dollar. The extra 0.50 dollars is the markup measured against what the seller spent: 0.50 divided by 0.50 is 1, so the markup is 100%. The same 0.50 dollars is only 50% of the 1 dollar price, which is the margin. Markup measures the extra money against what you spent, and margin measures it against what the customer paid.

Worked example: Pricing a cup of coffee and comparing markup with margin

Blue Kettle Coffee, a made-up coffee chain used for illustration, spends 2 dollars on the beans, milk, cup and lid for one cup of coffee. It sells the cup for 3 dollars. We want the markup on that cup, the margin on the same cup for comparison, and the price that a 60% markup would give on the same 2 dollar cost.

Find the profit on one cup. The profit is what the customer pays minus what the cup cost the shop. Subtracting the cost from the price tells us how much extra money the shop keeps: $\text{Price} - \text{Cost} = 3\ \text{dollars} - 2\ \text{dollars} = 1\ \text{dollar}$ .
Divide the extra money by the cost. Markup measures the extra money against what the shop paid, so we divide by the cost, not by the price. $\text{Markup} = \frac{1\ \text{dollar}}{2\ \text{dollars}} = 0.5$ . The dollar signs cancel, so the markup is a plain number with no unit.
Write the markup as a percentage. A percentage is a number out of 100, so a decimal is turned into one by multiplying by 100. The markup is $0.5 \times 100 = 50\%$ . This means the shop adds half of the cup’s cost on top of that cost to reach the price.
Work out the margin on the same cup for comparison. Margin divides the same extra money by the price, which is what the customer actually paid. $\text{Margin} = \frac{1\ \text{dollar}}{3\ \text{dollars}} \approx 0.333$ , which is 33.3%. The same dollar of profit looks smaller here because the bottom number is bigger.
Use the formula the other way round to find a price. Rearranging the formula gives $\text{Price} = \text{Cost} \times (1 + \text{Markup})$ . For a 60% markup, the markup is 0.6, so the price is $2\ \text{dollars} \times 1.6 = 3.2\ \text{dollars}$ , which is 3.20 dollars. The 1 in the bracket keeps the original cost in the answer, and the 0.6 adds the markup on top of it.
Check the first answer by putting it back. If the markup is 0.5, then the cost times 1.5 should give the price: $2 \times 1.5 = 3$ dollars, which matches the 3 dollar price we started with. Running the formula in reverse brings back the starting number, so the markup is right.

Answer: The markup on the 3 dollar cup is 50%, because the shop adds 1 dollar to a 2 dollar cost. The same cup has a 33.3% margin, because the 1 dollar is one third of the price. A 60% markup on the 2 dollar cost would give a price of 3.20 dollars.

The numbers in this example are recomputed by script every time the site is built.

Common mistakes

Dividing by the price instead of the cost. That gives the margin, not the markup. For a 2 dollar cost and a 3 dollar price, dividing by the price gives 33.3%, not 50%.
Dividing the whole price by the cost. Dividing 3 dollars by 2 dollars gives 1.5, which is 150%, and that is the price as a multiple of the cost, not the markup. Subtract the cost first.
Mixing up the two percentages when a text quotes one without saying which. Always ask whether the bottom number of the fraction is the cost or the price.
Writing a decimal as a percentage with the wrong size. A markup of 0.5 is 50%, because a percentage is the decimal times 100, not the decimal with a percent sign added.

Where you will meet it

Pricing menu items, when a shop starts from what each item cost to make and adds a chosen markup.
Retail price tags, where a store sets a selling price above the wholesale price it paid for a product.
Quotes for custom work, where a contractor adds a percentage on top of the cost of materials and labor.
Comparing two stores, because markup and margin can sound alike but are not the same number.

Questions people ask

Is markup the same as margin?

No. Markup divides the profit by the cost, and margin divides the same profit by the price. Because the price is bigger than the cost whenever there is a profit, the margin is always smaller than the markup. A 50% markup is a 33.3% margin.

Can a markup be more than 100%?

Yes. A markup of 100% means the price is double the cost. A markup of 150% means the price is two and a half times the cost. Markup has no upper limit, but margin can never reach 100% while the cost is above zero, because some of the price always goes to paying the cost.

What is a good markup?

The formula cannot say. The right markup depends on the costs of running the business, the prices other sellers charge and how many items are sold. This page explains the arithmetic only.

Net Profit Margin: Net profit margin says how many cents of profit a business keeps from each dollar of sales, after every cost has been paid.
Break-Even Point: The break-even point says how many items you must sell before the money from sales has paid back all your fixed costs, so you stop losing money.

Sources

Published 2026-10-23. Plain-text copy for AI agents and readers: finance/markup.md.