Markup Percentage Formula (Table of Contents)
- Markup Percentage Formula
- Examples of Markup Percentage Formula (With Excel Template)
- Markup Percentage Formula Calculator
Markup Percentage Formula
Markup in very simple terms is basically the difference between the selling price per unit of the product and the cost per unit associated in making that product. So basically it is the additional money, over and above the cost of the product, which the seller would get. So markup percentage is basically the percentage amount of uplift of cost to arrive at the selling price. Markup percentage and margin are similar concepts but they are not the same and sometimes it is difficult to understand the difference. A margin is calculated as % of price which markup is calculated as % of the cost.
For example: Let’s say that we have a product which is selling at Price of 1000 in the market and the cost associated with the product is 800. If we talk about margin, then we are making 200 by selling this product at 1000. So margin = 200 / 1000 = 20%. But if we look at the markup, we have a cost of 800 which is uplifted by 200 to arrive at the price of 1000. So markup percentage = 200 / 800 = 25%. This is how we calculated the margin and markup.
A formula for Markup Percentage is –
There is another way of calculating markup percentage:
Examples of Markup Percentage Formula (With Excel Template)
Let’s take an example to understand the calculation of Markup Percentage formula in a better manner.
Markup Percentage Formula – Example #1
Let Say you have a product which is getting sold in the market at a price of $300 per unit. Cost per unit of production of this is $180. Calculate the Markup Percentage.
Solution:
Markup Percentage is calculated using the formula given below
Markup Percentage = [(Selling Price Per Unit – Cost Price Per Unit) / Cost Price Per Unit] * 100
- Markup Percentage = [($300 – $180) / $180] * 100
- Markup Percentage = ($120 / $180) *100
- Markup Percentage = 66.67%
Markup Percentage Formula – Example #2
Let say a company XYZ is in a business of making electrical room heaters for both households and corporate offices. An analyst is analyzing this company and has collected the following information for last year. Calculate the Markup Percentage.
Solution:
Revenue Per Unit is calculated using the formula given below
Revenue Per Unit = Revenue / Number of Units Sold
- Revenue Per Unit = $200,000 / $2,000
- Revenue Per Unit = $100
COGS Per Unit is calculated using the formula given below
COGS Per Unit = COGS / Number of Units Sold
- COGS Per Unit = $170,000 / $2,000
- COGS Per Unit = $85
Markup Percentage is calculated using the formula given below
Markup Percentage = [(Revenue Per Unit – COGS Per Unit) / COGS Per Unit] * 100
- Markup Percentage = (($100 – $85) / $85) * 100
- Markup Percentage = ($15 / $85) * 100
- Markup Percentage = 17.65%
Explanation
As explained above, the markup margin is calculated as % of the cost and not the selling price. Below are the steps which one can follow while calculating markup percentage:
- The first step is to find out the sales per unit of the company or price per unit of the product which the company is selling and also find the cost per unit associated with it.
- This revenue per unit and cost per unit can be calculated by taking total revenue and cost and dividing it by the number of units sold.
- Now, take the difference between revenue per unit and cost per unit which will give you markup value.
- Finally, divide the markup value with the cost per unit to arrive at the markup percentage.
Relevance and Uses of Markup Percentage Formula
Any business, if they want to earn a profit and retain customers, they need to have a strong understanding of markup and markup percentage because it helps them in pricing their products in the market. If they charge high markup percentage, customer price will go up and they will move to competition. So companies need to be very careful while marking up. Markup should be such that the company can earn sufficient profit and also customer will not look at the product as costly. Markup percentage and margin are very similar concepts, as explained above and we should be careful when to use which method. In a very simple comparison, the markup is the best fit when you are starting any business and you are completely aware of costs but exploring what kind of revenues you can get from sales. Once you have got the hang of the business, margins are helpful to know the actual profit you will make on sales.
Markup Percentage Formula Calculator
You can use the following Markup Percentage Calculator
| Selling Price Per Unit | |
| Cost Price Per Unit | |
| Markup Percentage Formula | |
| Markup Percentage Formula = |
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This has been a guide to Markup Percentage Formula. Here we discuss how to calculate Markup Percentage along with practical examples. We also provide Markup Percentage calculator with downloadable excel template. You may also look at the following articles to learn more –
