Pricing up from cost
Markup is the percentage you add to what something cost you. It is the easiest way to price because you already know your cost. The catch is that the margin it leaves you is always smaller than the markup, so a quote agreed in markup terms and reported in margin terms will look worse than you expected.
A worked example
A part costs you 1,200. A 50% markup adds 600, so you charge 1,800. That 600 is half your cost but only a third of your price, which is why the margin comes out at 33.3%. If you need a 40% margin instead, you need a 66.7% markup.
Common questions
Is markup the same as margin?
No, and the gap widens as the numbers grow. Markup is measured against your cost, margin against your selling price. A 50% markup is a 33.3% margin; a 100% markup is a 50% margin.
What markup should I use?
Work backwards from the margin you need to cover overheads and still make a profit, then convert it to a markup. Retail often lands between 50% and 100%, but your costs decide, not a rule of thumb.
Should markup go on top of tax?
No. Mark up the cost before tax, then add VAT, GST or sales tax to the final price. Marking up a tax-inclusive cost quietly inflates your price.