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E-commerce Markup
pricingThe percentage added to the cost of a product or service to determine its selling price. Markup is expressed as a percentage of cost, not of the final price.
Definition
Markup is one of the most fundamental concepts in pricing. It represents the difference between what something costs you and what you sell it for, expressed as a percentage of your cost. A 50% markup on a $100 item means you sell it for $150. While often confused with margin, markup is always calculated relative to cost, making it the natural starting point when you know your costs and need to set a price.
Understanding markup is essential for any business that sells physical or digital products. If your markup is too low, you may not cover overhead costs even though each sale appears profitable. If your markup is too high, you risk pricing yourself out of the market. The right markup depends on your industry, competition, volume, and operating expenses.
Markup percentages vary dramatically by industry. Grocery stores often work with markups of 10-30%, while jewelry retailers may apply markups of 100-300%. Software and digital products can carry markups of 500% or more because the marginal cost of each additional unit is near zero.
Formula
Markup % = ((Selling Price - Cost) / Cost) x 100 Example
If a product costs $40 to produce and you sell it for $60, your markup is (($60 - $40) / $40) x 100 = 50%. Note that the margin on the same sale would be 33.3%, since margin is calculated against the selling price.
Related Terms
Margin
pricingThe percentage of the selling price that represents profit. Unlike markup, margin is calculated as a percentage of revenue, not cost.
Cost-Plus Pricing
pricingA pricing strategy where the selling price is determined by adding a fixed markup percentage to the total cost of producing a product or delivering a service.
Gross Profit
profitabilityThe absolute dollar amount remaining after subtracting the cost of goods sold (COGS) from total revenue. It is the money available to cover operating expenses and generate net profit.
Cost of Goods Sold (COGS)
ecommerceThe direct costs attributable to producing or acquiring the goods sold by a company. COGS includes materials, direct labor, and manufacturing overhead, but excludes indirect costs like marketing and administration.
Put It Into Practice
Use these calculators to apply markup to your own numbers.