Markup Percentage Formula

Updated July 28, 2023

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 the difference between the selling price per unit of the product and the cost per unit associated with making that product. So basically, it is the additional money that the seller would get over and above the product cost.

So markup percentage is the uplift of cost to arrive at the selling price. Markup percentage and margin are similar concepts but not the same, and sometimes it is difficult to understand the difference. A margin is calculated as % of the price while markup is calculated as % of the cost.

For example: Let’s say that we have a product that is selling at a Price of 1000 in the market, and the cost associated with the product is 800. If we talk about margin, we make 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, 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 the Markup Percentage formula in a better manner.

Example #1

Let’s Say you have a product that is getting sold in the market at a price of $300 per unit. The cost per unit of production of this is $180. Calculate the Markup Percentage.

Solution:

The formula to calculate Markup Percentage is as 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%

Example #2

Let’s say a company, XYZ is in the 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:

The formula to calculate Revenue Per Unit is as below:

Revenue Per Unit = Revenue / Number of Units Sold

• Revenue Per Unit = $200,000 / $2,000
• Revenue Per Unit = $100

The formula to calculate COGS Per Unit is as below:

COGS Per Unit = COGS / Number of Units Sold

• COGS Per Unit = $170,000 / $2,000
• COGS Per Unit = $85

The formula to calculate Markup Percentage is as 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, not the selling price. Below are the steps that one can follow while calculating markup percentage:

• The first step is to find out the sales per unit of the company, the price per unit of the product the company is selling, and 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, giving you markup value.
• Finally, divide the markup value by the cost per unit to arrive at the markup percentage.

Relevance and Uses

A strong understanding of markup and markup percentage is crucial for any business aiming to generate profits and maintain a loyal customer base. This knowledge enables businesses to price their products in the market effectively. It is important to strike a balance when determining the markup percentage, as excessively high markups can drive up customer prices and push them toward competitors. Therefore, companies must exercise caution when applying markups, ensuring they can earn sufficient profit without making their products appear costly to customers.

Markup percentage and margin are closely related concepts, as previously explained, and it is essential to discern when to utilize each method appropriately. When initiating a business and possessing comprehensive knowledge of costs, markup is the preferred approach to explore potential revenues from sales. As the business progresses, margins become valuable in determining the actual profit achievable from sales.

Markup Percentage Formula Calculator

You can use the following Markup Percentage Calculator

Recommended Articles

This has been a guide to Markup Percentage Formula. Here we discuss how to calculate Markup Percentages along with practical examples. We also provide a Markup Percentage calculator with a downloadable Excel template. You may also look at the following articles to learn more –

1. Calculation of Markup Price
2. Guide to Capital Adequacy Ratio Formula
3. Formula For Relative Risk Reduction
4. Calculator For Net Realizable Value Formula