Markup:
set a selling price from what it cost you

What is markup?

Markup is the amount you add to the cost of an item to reach its selling price, expressed as a percentage of the cost. If you buy something for ₹480 and sell it for ₹648, you have added ₹168, which is a markup of 35%.

Traders, wholesalers and small shops like markup because it is easy to apply: look at what you paid, add a fixed percentage and you have a price. Its twin, gross margin, expresses the same ₹168 as a share of the selling price instead, which gives 25.9%.

Both numbers describe the same sale. Confusing them is the most common pricing error, and it nearly always costs the seller money.

This guide treats markup from the seller's side. If you want to read it the other way, starting from a selling price and asking what share of it is profit, that is the gross profit margin question.

Markup formula

1. 1Work out the true unit cost, including transport, packing and any import duty.
2. 2Decide the markup you need, as a percentage of that cost.
3. 3Multiply the cost by 1 plus the markup as a decimal. A 35% markup means multiplying by 1.35.
4. 4Add GST afterwards if it applies. GST is collected on top of your price, it is not part of your markup.

The word 'cost' matters here. Use the full landed cost: what you paid the supplier plus everything it took to get the item to your shelf. A markup applied to the invoice price alone leaves those extra costs to be paid out of your profit.

Example: pricing a ₹480 item at 35% markup

A retailer buys a bag for ₹480 landed cost and wants a 35% markup.

The price check works in both directions. (648 − 480) ÷ 480 = 0.35, which confirms the 35% markup. And 168 ÷ 648 is 25.9%, which is the figure you would see on a profit statement.

A supplier may tell you they earn 35% on a sale. Ask whether that is markup or margin, because the selling price they imply differs: ₹738 if it is margin on ₹480, and ₹648 if it is markup.

Markup and margin side by side

The two percentages always move together, but margin is always the smaller one. The conversion is margin = markup ÷ (100 + markup) and markup = margin ÷ (100 − margin).

The gap widens as the markup grows. At 10% the two figures are less than a point apart, so the confusion is cheap. At 50% they differ by nearly 17 points, which is enough to turn a profitable price list into a loss-making one.

A 100% markup, which doubles the cost, is only a 50% margin. If you want a margin figure to steer by, the gross profit margin guide shows how to work from the selling price instead.

Choosing a markup that covers your costs

Start from the margin you need and work back. Markup needed = margin ÷ (100 − margin). To finish with a 30% gross margin, you need a markup of 30 ÷ 70 = 42.9%, not 30%.

Then check that the profit per unit can carry your overheads. Suppose the shop's fixed costs are ₹60,000 a month and each bag earns ₹168 at a 35% markup. You need 60,000 ÷ 168 = 357.1, so at least 358 bags a month, just to break even.

If that is more than the shop can realistically sell, the markup has to rise, the overheads have to fall, or the range has to change. The break-even guide on this site works through the same idea in more detail.

Fast-moving items can carry a lower markup because the same shelf space turns over many times. Slow, bulky or fragile goods usually need more, since they tie up cash and risk damage.

How markups stack through a supply chain

Goods often pass through more than one seller, and each applies a markup to its own cost. The percentages do not simply add up.

The customer pays ₹504, which is 68% more than the factory price, not 60%. Each markup is applied to a bigger base than the one before it, so the total is 1.20 × 1.40 = 1.68.

Mistakes to avoid when marking up

• Applying the percentage to the selling price. Dividing ₹480 by 0.65 gives ₹738, which is a 35% margin and a 53.8% markup, not the 35% markup you intended.
• Using the invoice price instead of landed cost. Freight, packing and duty belong in the cost you mark up.
• Treating GST as part of the markup. GST is collected for the government and should sit outside your pricing maths.
• Rounding to a price point without checking. Selling the ₹648 bag at ₹699 gives an actual markup of 45.6%, which may be a fine decision, but it should be a deliberate one.
• Ignoring the costs that markup has to cover. Rent, salaries and returns come out of the markup, so a thin markup on a slow item can lose money.

Finally, keep a note of which method you used when you set each price. A price list built on 35% markup in one season and 35% margin in another will give very different profits from items that look alike.