Mark Up: Computing, How to Calculate and Examples in Business

Using markups gives individuals and businesses the opportunity to make a profit. The bigger the mark-up, the more profit the sale generates. Learning how to calculate mark-up and mark-up percentages is easy with formulas.

It allows anyone to define the markup required on a product or service. In this article, we will discuss what mark up is, how to calculate mark up, why it is confused with gross margin and give examples of how to use the formula.


1 What is Mark Up?
2 Differences Between Markup and Gross Margin
3 Ways to Calculate Mark up Percentage
3.1 1. Review the equation
3.2 2. Define a markup
3.3 3. Divide markup by cost
3.4 4. Convert to percentage
4 Examples of Mark Up Calculations
4.1 Example 1
4.2 Example 2

What is Mark Up?

Mark up is the gap between the cost of a product or service and its actual selling price. Using markups allows manufacturers to cover the costs of the inventory needed to make the product and make a profit. Both fixed and variable costs are included in the final price. In the market, markup is often referred to as a percentage. As an example:

Due to limited supplies, the price of designer jackets at local outlets was increased by 20%.

Difference Between Markup and Gross Margin

Mark up and gross margin are often used interchangeably in today’s market, but traditionally, the two are different. By definition, mark p is the amount of increase in the price of a product while margin is sales minus cost of goods sold.

Some business pundits believe that the misunderstanding in making them interchangeable stems from the bottom line. However, misusing this term can result in pricing too high or too low, resulting in lost profits. The following examples should resolve further confusion:

1. Mark up: If the manufacturing cost of a product is 30,000 and the item sells for 50,000, the markup is 20,000. It will be expressed as a markup percentage of 66.7%.
2. Gross margin: Using the example above, the gross margin is also 30,000. The margin percentage will be 60%.

If a business or individual wants to earn a certain margin, they must increase the cost of the product to a higher percentage of the margin. This is because the basis for calculating markups is cost. Costs must be lower than revenue, and the markup percentage must be higher than the margin percentage.

How to Calculate Mark up Percentage
The mark-up is the difference between the cost of goods sold and the selling price and is determined by a simple formula. Follow these steps to define markup:

1. Review the equation

To find the markup percentage, businesses use the markup percentage formula:

Markup Percentage = (Markup/Cost) x 100%

2. Define a markup

The markup is the difference between the selling price and the cost:

Markup = Selling Price – Cost

3. Divide markup by cost

With the markup determined, the business or individual calculates the next markup percentage. Using the order of operations, calculate the markup and cost quotient:

Markup Percentage = (Markup / Cost)

4. Change to percentage

Most quotients yield decimal answers. To determine the markup percentage, convert the answer to a percentage by multiplying it by 100:

(Share) x 100%

The final answer equals the markup percentage.

Example of Mark Up Calculation

Learning how to calculate markup can be a useful skill whether one owns their own small company or acts as chief financial officer. It can be applied to almost any scenario for extra practice. Here are some examples:

Example 1

Abram owns a delicatessen and recently raised its prices due to poor sales. For reporting purposes, it must know the exact markup percentage applied to its products.

He spent 50,000 to buy, prepare and store one whole gourami. Abram now sells a complete set of ready-made and ready-to-use gourami for 75,000. To determine his markup percentage, he uses the formula:

Markup Percentage = (Selling Price – Cost/Cost) x 100

Abram entered his number. He entered 75,000 as his selling price and 50,000 as his fee.

Markup Percentage = ((75 – 50) / 50) x 100

Aram solved the difference between 75,000 and 50,000, earning 25,000. He divides it by 50,000, getting .5. To convert the decimal to a percentage, Abram multiplied by 100. He found that he marked his package deal at 50%.

Example 2

The examples above are the most commonly used formulas. However, the variables change in more advanced situations, depending on the situation at hand. As an example:

A mid-range computer accessories manufacturer has just received an order for 100 headsets and 50 keyboards. Each headset costs $60 and each keyboard costs $35. The keyboard is wireless and requires an additional $1000 in total to cover the additional technology. The company appointed Radha, a manufacturing manager, to determine how much the order would cost to earn a 20% profit.

To use the formula, Radha needs to calculate the total cost of the order. He started with keyboards because they needed additional technology. The order required 50 keyboards and the technology cost was $1000 in total. To find the total cost of the keyboard, he had to multiply:

Number of Keyboards x Keyboard Cost = Total Keyboard Cost

50 x 35 = $1,750

To the total cost, Radha was able to add an additional $1000 technology fee. The final keyboard cost amounts to $2,750. He must now find the cost of the headset. The order requires 100 headsets with no additional technology requirements. Each headset costs $60 to make. To find out the total cost of the headset, Radha has to multiply:

Number of Headsets x Headset Fee = Total Headset Fee

100 x 60 = $6,000

To find the total cost of the order, Radha has to add up the two. The resulting sum of $1,750 plus $6,000 is $7,750. He can now set his formula equal to 20% to determine the selling price:

To make the final calculation, Radha separates the process into several steps:

1. Total input costs: Radha uses a formula to enter her information. He came up with a formula for subtracting $2,350 in costs from the selling price.

20% = (Selling Price – $7,750) / $7,750

2. Convert 20% to a fraction: To solve a math equation like this, the percentage is converted to a fraction so that the next step can be done.

1/5 = (Selling Price – $7,750) / $7,750

3. Multiply both sides by 10: To balance the equation, Radha imitates what she does on one side on the other.

1/5 x 10 = (Selling Price – $7,750) / $7,750) x 10

2 = (Selling Price – $7,750) / 775

4. Multiply both sides by 775: With the problem simplified, Radha multiplies again.

775 x 2 = 775 (Selling Price – $7,750) / 775

1.550 = Selling Price – $7,750

5. Add 7750 to both sides: With the problem further simplified, Radha adds.

7,750 + 1,550 = (Selling Price – $7,750) + 7,750

Selling Price = $9,300

To make 20% profit, Radha charges the customer $9,300.

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