Markup (business) - Definition and Overview

Markup is a term used in marketing to indicate how much the price of a product is above the cost of producing and distributing the product. It can be expressed as an fixed amount or as a percentage. There are numerous variations of each.

As a Fixed Amount

assume:
retail list price = $1.99 and the product cost is $1.40
MARKUP = price - cost
                  1.99 - 1.40 = .59

assume the actual selling price was $1.60
MARKDOWN = List price - selling price
                          1.99 - 1.60 = .39

INITIAL MARKUP = list price - cost
                                 1.99 - 1.40 = .59

MAINTAINED MARKUP = sale price - cost
                                         1.60 -1.40 = .20

As a Percentage

INITIAL MARKUP % = initial markup / sale price
                                    .59 / 1.99 = 29%

MAINTAINED MARKUP % = maintained markup / sale price
                                              .20 / 1.60 = 13%

MARKUP % ON COST = markup / cost
                                        .59 / 1.40 = 42%

MARKUP % ON PRICE = markup / price
                                          .59 / 1.99 = 29%

To convert from markup on price to markup on cost:
MARKUP ON COST = markup % on price / 1 - markup % on price
                                    .29 / (1 - .29) = 42%

To convert from markup on cost to markup on price:
MARKUP ON PRICE = markup % on cost / 1 + markup % on cost
                                    .42 / (1 + .42 ) = .29

PRICE = cost / 1 - markup % on price
              1.40 / (1 - .29) = 1.99

COST = price / 1 + markup % on cost
              1.99 / (1 + .42) = 1.40

PRICE = markup / markup % on price
              .59 / .29 = 1.99

See also : marketing, pricing, cost-plus pricing, production, costs, and pricing