How to Calculate Markup Based on Cost

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To calculate the markup on a product, your company needs to know the cost of the item. This can be the expense to produce it or the cost to buy it wholesale. The markup is the price above the cost that your company charges to sell the product. The markup will be the profit on the sale of each item.

Determine the cost of the product and the percent of profit that your company wants to make on each sale. For example, you produce widgets for $3 a piece. You want to make 150 percent profit on each sale. If you convert the percentage to decimal form, then 150 percent equals 1.50.

Add 100 percent to the percent of the profit that the company wants to make on each sale, as determined in the step above. This represents the cost to produce the product. In decimal form, one hundred percent equals one. In the example, one plus 1.50 equals 2.50. Alternatively, you could write this in its percentage form as 100 percent plus 150 percent equals 250 percent.

Multiply the cost of the product by the number calculated in Step Two. In the example, $3 times 2.50 equals a selling price of $7.50. Alternatively, this can be expressed as $3 times 250 percent equals a selling price of $7.50.

Subtract the selling price from the cost of the product to determine the markup. In the example, $7.50 minus $3 equals a $4.50 markup.


About the Author

Carter McBride started writing in 2007 with CMBA's IP section. He has written for Bureau of National Affairs, Inc and various websites. He received a CALI Award for The Actual Impact of MasterCard's Initial Public Offering in 2008. McBride is an attorney with a Juris Doctor from Case Western Reserve University and a Master of Science in accounting from the University of Connecticut.

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