Data Source and Methodology

This calculator is based on standard financial and retail accounting principles as outlined in "Principles of Managerial Finance" by Gitman & Zutter.

  • Source: Gitman, L. J., & Zutter, C. J. (2025). Principles of Managerial Finance (17th ed.). Pearson.
  • Reference: Chapter 9: The Cost of Capital.

All calculations are strictly based on the formulas derived from this established methodology to ensure accuracy and reliability.

The Formulas Explained

The core calculations for determining selling price from markup are as follows. We also include the formula for profit margin, a related and crucial metric.

Selling Price

The selling price is calculated by adding the markup percentage to the cost.

$$ \text{Selling Price} = \text{Cost} \times (1 + \frac{\text{Markup \%}}{100}) $$

Profit

Profit is the monetary difference between the selling price and the original cost.

$$ \text{Profit} = \text{Selling Price} - \text{Cost} $$

Profit Margin

Profit Margin, which is different from markup, expresses the profit as a percentage of the selling price.

$$ \text{Margin \%} = \frac{\text{Selling Price} - \text{Cost}}{\text{Selling Price}} \times 100 $$

Glossary of Variables

  • Cost: The total amount paid for a product, including manufacturing, materials, and labor. This is your "Cost of Goods Sold" (COGS).
  • Markup: The percentage added to the cost of a product to determine its selling price. A 100% markup means you are doubling the cost.
  • Selling Price: The final price at which the product is sold to the customer (before taxes).
  • Profit: The monetary gain made on the sale, calculated as Selling Price minus Cost.
  • Profit Margin: The profit expressed as a percentage of the selling price. This metric shows what percentage of revenue is profit.

How It Works: A Step-by-Step Example

Let's say you run a small bakery and the total cost (flour, sugar, labor) to make one artisan bread loaf is $2.00. You decide you need a 150% markup to cover overhead and make a profit.

  1. Enter Cost: $2.00
  2. Enter Markup: 150%

Step 1: Calculate the Selling Price

Using the formula:
$2.00 * (1 + (150 / 100)) = $2.00 * (1 + 1.5) = $2.00 * 2.5 = $5.00
The selling price is $5.00.

Step 2: Calculate the Profit

Using the formula:
$5.00 (Price) - $2.00 (Cost) = $3.00
The profit is $3.00.

Step 3: Calculate the Profit Margin

Using the formula:
($3.00 (Profit) / $5.00 (Price)) * 100 = 0.6 * 100 = 60%
Your profit margin is 60%.

Frequently Asked Questions

What is the difference between markup and margin?

Markup is the percentage of profit added to the cost of a product. If a product costs $50 and you add a 100% markup, you sell it for $100. Margin (or Profit Margin) is the percentage of profit relative to the selling price. In that same example, your $50 profit on a $100 selling price represents a 50% margin. Markup is cost-based, while margin is revenue-based.

How do I calculate the selling price if I know my desired margin?

The formula is: Selling Price = Cost / (1 - Margin Percentage). For example, if your cost is $50 and you want a 50% margin, the calculation is $50 / (1 - 0.50) = $50 / 0.50 = $100. Our dedicated Margin Calculator tool can also perform this calculation for you.

Does markup include taxes or shipping?

No. The 'Cost' input should be your 'Cost of Goods Sold' (COGS), which includes manufacturing, materials, and direct labor. Markup is applied to this cost to determine the selling price before sales tax. Shipping is typically handled as a separate line item or factored into your overhead costs, not directly in the base product markup.

What is a typical markup for retail?

Markups vary drastically by industry. A common retail strategy is 'keystone pricing,' which is a 100% markup (doubling the cost). However, grocery stores may have markups as low as 10-20%, while luxury goods or jewelry can have markups of 300% or more. Your markup must be high enough to cover all operating costs, overhead, and still generate a profit.

Can I use this calculator for services?

Yes. For service-based businesses (like consulting, design, or freelance work), your 'Cost' would be the total cost to deliver that service. This includes your hourly wage (or your employee's wage), software costs, and any other direct expenses. The markup is the percentage you add to that cost to determine your client's final price.

Tool developed by Ugo Candido.
Finance and retail content verified by the CalcDomain Editorial Board.

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