Markup — Definition, Formula & Examples
Markup is the amount a seller adds to the cost of an item to determine its selling price. It is usually expressed as a percentage of the cost.
A markup is the positive difference between the selling price and the cost price of a good, often stated as a percent of the cost price such that selling price equals cost plus the markup amount.
Key Formula
Where:
- = Cost price (what the seller paid)
- = Markup rate as a decimal (e.g., 25% = 0.25)
How It Works
To find the markup amount, multiply the cost by the markup percent (written as a decimal). Then add that amount to the cost to get the selling price. For example, a 40% markup on a $50 item means you add $20, giving a selling price of $70. You can also combine the steps: multiply the cost by to jump straight to the selling price.
Worked Example
Problem: A store buys a jacket for $60 and applies a 25% markup. What is the selling price?
Find the markup amount: Multiply the cost by the markup rate.
Add markup to cost: Add $15 to the original cost.
Answer: The selling price is $75.
Why It Matters
Markup shows up every time a business sets a retail price, from grocery stores to online shops. In 7th-grade math (CCSS 7.RP.A.3), you solve markup, discount, and tax problems together, building fluency with percent increase and decrease that carries into high-school business math and economics.
Common Mistakes
Mistake: Confusing markup with profit margin. Students sometimes calculate the markup as a percent of the selling price instead of the cost price.
Correction: Markup percent is always based on the cost. If the cost is $60 and you add $15, the markup is , not .