Income
Markup: Definition & Example
Also called: Markup percentage
What Is Markup?
Markup is the amount added to the cost of a product or service to set its selling price, usually stated as a percentage of the cost.
What does markup mean?
Markup percentage is profit divided by cost. An item that costs $40 and sells for $60 carries a $20 markup, which is 50% of the cost. To set a price from a markup, multiply the cost by 1 plus the markup: $40 × 1.5 = $60.
Markup is often confused with margin. Margin measures the same profit against the selling price instead of the cost, so it is always the smaller number: a 50% markup is a 33.3% margin, and a 100% markup (doubling the cost, called keystone pricing in retail) is a 50% margin.
For self-employed people, freelancers, and contractors, markup is how revenue turns into income. It has to cover overhead such as insurance, software, vehicles, and unpaid time before anything is left as profit, which is why a business’s deposits are always higher than what the owner actually earns.
Markup example
A contractor buys $2,000 of materials for a kitchen job and marks them up 20%, billing $2,400 for materials. The $400 markup is 20% of cost but only 16.7% of the billed amount, which is the margin on those materials.
Markup Calculator
Open the full markup calculatorRelated terms
- Profit MarginProfit margin is profit as a percentage of revenue. Gross margin subtracts only the direct cost of what was sold; net margin subtracts every expense.
- Break-Even PointThe break-even point is the level of sales at which a business’s revenue exactly covers its costs, so it makes neither a profit nor a loss.
- Self-Employment IncomeSelf-employment income is money earned from running your own business or working as an independent contractor, measured as business revenue minus business expenses.
- 1099 Income1099 income is money paid to independent contractors, freelancers, and other non-employees, reported on an IRS Form 1099 without income tax withheld by the payer.
- Net IncomeNet income is what remains after deductions. For a person, it is take-home pay after taxes and withholdings. For a business, it is profit after all expenses.
Markup FAQ
- How do you calculate markup?
- Subtract the cost from the selling price, divide by the cost, and multiply by 100. A $40 item sold for $60 has a ($60 − $40) ÷ $40 = 50% markup.
- What is the difference between markup and margin?
- Markup is profit as a percentage of cost. Margin is profit as a percentage of the selling price. The same $20 profit on a $40 item sold for $60 is a 50% markup and a 33.3% margin.
- Can markup be more than 100%?
- Yes. A 100% markup doubles the cost, and many products are marked up much more. Margin, by contrast, can never reach 100%.
