Business Dictionary
Markup
Definition
The amount added to the cost price of goods to cover overhead and profit.
Deep Dive
Markup is the amount added to the cost price of goods or services to determine the selling price, primarily to cover overhead expenses and generate a profit. It is typically expressed as a percentage of the cost price. For example, if an item costs $10 and is sold for $15, the markup is $5, or 50% of the cost. This calculation is a straightforward way for businesses to set prices that ensure they can sustain operations and achieve their desired profit targets.
Examples & Use Cases
- 1A retailer adds a 50% markup to the wholesale cost of a product to arrive at its retail selling price
- 2A web design agency applies a 30% markup to the cost of purchasing stock photos and premium plugins for a client project
- 3A restaurant calculates a 200% markup on the cost of ingredients for a particular menu item to cover labor, rent, and profit.
Related Terms
Cost-Plus PricingGross ProfitPricing Strategy