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# How do I Calculate Markup?

Markup is a number that represents the difference between the total sale price of an item and the original cost to buy or produce that item. For example, a retailer may buy computers with the intention of selling them to consumers. In order to earn a profit on these sales, he marks the computers up to a price that is higher than what he paid for them. The amount that he adds is called the markup. To calculate markup of an item, a person may subtract the original cost of the item from its sale price, or he may work with a percentage, multiplying a number that represents the percentage of markup by the cost and then adding that amount to the original cost.

The easiest way to calculate markup is to use subtraction. For example, a retailer may purchase a phone with a suggested retail price of $30 US Dollars (USD). If the retailer paid $15 USD for the item, he can subtract his cost from the suggested retail price to come up with the markup amount. In this case, the markup amount would be $15 USD.

In some cases, a retailer may also want to know what the percentage of the markup is. To calculate markup in such a case, he could divide the amount he paid by the suggested retail price. If his cost in providing a service was $25 USD, for example, and the selling price was $40 USD, he can begin his calculations by subtracting $25 USD from $40 USD to figure out the rate of increase, in this case $15 USD. Then he would divide the rate of increase, $15 USD, by the original amount and come up with 0.6, or 60 percent, which would be his percentage markup.

Sometimes, a person may wish to apply a percentage to the original cost of an item or service and then calculate markup. For example, a person may start with an item that costs $5 USD to purchase or produce and wish to mark it up by 25 percent. To calculate this amount, he would change the percent to a decimal by moving the decimal place two places to the left; this changes the number from 25 to 0.25. Then, he would multiply this number by the $5 USD it cost to buy or produce the item or service; the answer would be $1.25 USD. The $1.25 USD is the markup on the item, and the person could add the $1.25 USD markup to the cost to come up with the total sale price of $6.25 USD.

## Discussion Comments

Markup is equal to profit. A 5.00 item in the example marked up 25 percent sells for 6.66, not 6.25. 6.25 would only be a 20 percent markup. Just saying.

@poppyseed - You hit on a basic truth, or really two basic truths.

When something like gas (and with it, diesel) goes up in price, the cost to transport things goes up and things necessarily get more expensive. We live in a society where we buy from the person who sells the cheapest, wherever they may be.

This was made possible by cheap fuel. Now that it goes up, prices go up. And when it goes down again, prices can still remain high. Sounds pretty convenient.

@jessicaLynn - You're right, markup is a fact of life. And it does not even really guarantee a profit to the business if they can't keep their costs in line.

There's an old joke in the restaurant business: "If you want to retire with a million dollars, save up two million and then open a restaurant". They charge a lot more than the food and drinks cost them, but they have tons of costs as far as rent, utilities, labor, insurance, and a million other things.

We complain that a steak that costs $7 in the grocery store is $18.99 in the restaurant, but a lot of people fail to consider the rest of the story.

As a consumer, it is unlikely that we will ever know the markup on a lot of retail items, unless we have contacts who either work in the store or in the company that makes the product.

This is particularly true in the car industry. You can find the "invoice" price online now, but it only tells part of the story. There are things like holdback, factory to dealer incentives, end-of-year bonuses for high volume dealers that can be in the hundreds of thousands or even millions of dollars, and commissions paid by finance companies and others.

The best you can really do is compare what others have paid, if you can get honest data. Calculating the markup is really guess work at best. Your best bet is to try to buy something you like at a price you can afford.

@JessicaLynn - Markup is a fact of daily life to be sure. However, did you know that there's markup on medical services as well? Most insurance companies will only cover a certain percentage of the doctors fee for service. A lot of times, the percentage they will cover isn't very high. So in order to get paid a reasonable amount the doctor has to raise his base price!

Unfortunately, this practice means that people who don't have insurance end up paying way more than the service should actually cost.

I think I've pretty much just accepted that markup is a fact of life. If you buy something from the store, markup has been added to it to allow the business to make a profit. The only way to avoid markup is to not shop. We all know that isn't possible, so markup will remain a part of daily life!

I’m sorry, but I just find that many big retailers in particular are taking advantage of rising gas costs and such to keep mark ups high.

I can understand how these kinds of economic stressors can affect the businesses who sale us our every day needs and why prices would go up slightly.

However, I do not understand how Exxon makes record profits in a year where we have record high gas prices. That’s not all about crude oil costing more on the barrel; common sense tells any normal, competent person that.

And I’m afraid that my grocery bill went up with gas prices, but it sure didn’t go back down with them. Somebody is taking advantage of the regular Joe higher up the ladder, and it’s destroying our American Dream.

Many people think that retailers and the like mark up too much, and the truth is that some retailers do mark up quite a bit. I have read that some retailers will actually ask as much as three times what they pay for a product.

Whether this is actually fair or not, I’m not sure. However, marrying into a family who runs a small business really has enlightened me a bit to the ins and outs of why these products can cost much more.

They aren’t just marking up for sheer profit. They also have to pay employees, utilities, rent, shipping, credit card cost and any number of other things out of this mark up.

You would be surprised at how much really costs to pay for something that actually costs five bucks.

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