Business Math Series: Markup
Markup is the percent of increase in selling price from the original cost. Companies mark up products they sell in order to make money for their business. How much they mark up the products depends on many factors, including demand, whether the product is a luxury item, and so forth. Some items are marked up considerably. It’s hard to believe we pay what we do for common items.
For example, water, movie theater popcorn, and prescription drugs are marked up around 1000 – 3000%! Coffee at a coffee shop is marked up 300%. And produce at the grocery store is marked up, sometimes up to 75%.
To find the markup percent of a product you will need to know the selling price and the cost. Or, if you want to know the cost, you will need to know the markup percent and the selling price.
The formula for markup is as follows: markup% = ([sales price – cost] / cost)*100
We can also find how much the selling price is or the cost if we know the other variables.
Example: A pet grooming shop sells grooming supplies as well as provides grooming services. Their markup on goods is 40%. What is the selling price of an item that cost the company $13?
First, we need to know 40% of 13. That’s simple. We just multiply .40 times 13.
(.40) x (13) = 5.20
The selling price is the cost plus markup, so that’s $13 + $5.2 = $18.2
Example: An airline pays its wholesaler 45 cents per bag of potato chips. The airline sells the potato chips for $1.75 to its customers. What is the markup on the bag of potato chips?
The markup amount is: Selling price – cost, or $1.75 – $.45 = $1.30. To find the percentage we’ll ask: 1.3 is what percent of .45? This translates to:
1.3 = ?% x .45.
Solve: 1.3 ÷ .45 = x to get 2.88. Move over the decimal point to find the percentage.
The markup then is 288%.
Or we can use the markup formula: markup% = ([sales price – cost] / cost)*100 and just plug in the numbers:
(1.75 – .45) / .45) = 288%
Do you have any markup questions you’d like me to answer? Post them in the comments!