Markup Calculator

The formula this calculator uses

Selling price = Cost x (1 + markup), markup = (Price - Cost) / Cost

C

Cost — what one unit costs you to buy or make

m

Markup as a decimal — 40% is written as 0.40

P

Selling price, equal to C x (1 + m)

Margin

The same profit expressed against price, equal to m / (1 + m)

How to check the result by hand

1. 1

   Fix the cost base before anything else

   Write down what one unit costs you to buy or make, and state whether that figure includes freight, duty and tax. Every percentage that follows inherits this choice, so a cost of 60 that quietly excludes 8 of freight is not the same cost as one that includes it.

2. 2

   Decide the markup as a percentage of that cost

   The number should come from a policy rather than from a habit: a target return, a contract term, or a competitor's list price. Be explicit that it is a markup on cost, because that single word determines the denominator of the whole calculation.

3. 3

   Convert the percentage to a decimal and apply it

   40% becomes 0.40, and the price is 60 x (1 + 0.40) = 84. The uplift in money terms is 24, which is the figure that will actually appear in the accounts. Keeping the decimal conversion visible stops the common slip of multiplying by 40 instead of by 1.4.

4. 4

   Convert the result into the margin it really delivers

   Divide the uplift by the price, not by the cost: 24 / 84 = 28.5714%. Equivalently, margin = markup / (1 + markup). This is the number to compare against any target that was set in margin language, and it is where most pricing surprises are discovered.

5. 5

   Work backwards whenever the target was given as a margin

   If the brief says 40% margin, the price is 60 / (1 - 0.40) = 100 and the markup is 40 / 60 = 66.6667%. Always complete this step before quoting, because applying 40% to cost instead produces a price of 84 and misses the target by eleven percentage points of margin. It is good practice to state both figures on any price proposal, so that a reader trained in margin and a reader trained in markup are looking at the same transaction rather than at two different numbers that both look correct.