At SmartCapitalMind, we're committed to delivering accurate, trustworthy information. Our expert-authored content is rigorously fact-checked and sourced from credible authorities. Discover how we uphold the highest standards in providing you with reliable knowledge.
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.