Stores buy items from a wholesaler or distributer and increase the price when they sell the items to consumers. The increase in price provides money for the operation of the store and the salaries of people who work in the store.
A store may have a rule that the price of a certain type of item needs to be increased by a certain percentage to determine how much to sell it for. This percentage is called the markup.
If the cost is known and the percentage markup is known, the sale price is the original cost plus the amount of markup. For example, if the original cost is $4.00 and the markup is 25%, the sales price should be $4.00 + $4.00*25/100 = $5.00.
A faster way to calculate the sale price is to make the original cost equal to 100%. The markup is 25% so the sales price is 125% of the original cost. In the example, $4.00 * 125/100 = $5.00.
Margin vs Markup
Margin Percentage Calculation
Gross Profit Margin Ratio Analysis
Operating Profit Margin Ratio Analysis
Markup Percentage Definition
The markup percentage can best be defined as the increase on the original selling price. The markup sales are expressed as a percentage increase as to try and ensure that a company can receive the proper amount of gross or profit margin. Markups are normally used in retail or wholesale business as it is an easy way to price items when a store contains several different goods.
How to Calculate Markup Percentage
By definition, the markup percentage calculation is cost X markup percentage, and then add that to the original unit cost to arrive at the sales price. The markup equation or markup formula is given below in several different formats. For example, if a product costs $100, the selling price with a 25% markup would be $125.
Gross Profit Margin = Sales Price – Unit Cost = $125 – $100 = $25.
Markup Percentage = Gross Profit Margin/Unit Cost = $25/$100 = 25%.
Sales Price = Cost X Markup Percentage + Cost = $100 X 25% + $100 = $125.
Markup Percentage Example
Glen works has started a company that specializes in the setup of office computers and software. Glen has decided that he would like to earn a markup percentage of 20% over the cost of the computers to ensure that he makes the proper amount of profit. Glen has recently received a job to set up a large office space. He estimates that he will need 25 computers at a cost of $600 a piece. Plus, Glen will need to set up the company software in the building. The cost of the software to run all the computers is around $2,000. If Glen wants to earn the desired 20% markup percentage for the job what will he need to charge the company?
Glen must calculate the total cost of the project which is equal to the cost of software plus the cost of the computers.
$2,000 + ($600*25) = $17,000
Glen must find his selling price by using his desired markup of 20% and the cost just calculated for the project.The formula to find the sales price is:
Sales Price = (Cost * Markup Percentage) + Cost
Sales Price = ($17,000 * 20%) + $17,000 = $20,400
This means that to earn the return desired Glen must charge the company $20,400. This is the equivalent of a profit margin of 16.7%. For a list of markup percentages and their profit margin equivalents scroll down to the bottom of the Margin vs Markup page, or they can be found using the above markup formula.