What is markup? Formula and calculator

What is markup? Profit measured against cost, not selling price

Gross margin uses a different denominator: Gross margin = (selling price - cost) / selling price × 100% Shopify's current educational and product documentation uses the same distinction: markup relates profit to cost, while margin relates profit to selling price. That denominator difference is why a 50% markup does not produce a 50% margin.

The conversion table worth remembering

As price rises, markup can exceed 100% easily. Gross margin approaches 100% but does not exceed it for a normal positive-cost, positive-price sale.

Why markup feels intuitive

Markup starts from a number merchants often know: cost. If a buyer says, "We pay $30 wholesale and add 80%," the arithmetic is direct: $30 × 1.80 = $54 price That can be convenient for setting an initial price. But the resulting margin is:

• profit = $24
• margin = $24 / $54 = 44.4%

If the business target is specifically a 50% gross margin, an 80% markup misses it.

If you know target markup

For target markup: Price = cost × (1 + markup) For a $30 cost and 80% markup: $30 × 1.80 = $54 Use the formula that matches the metric you actually intend to control.

Discounts change realized markup

Suppose:

• cost = $50
• regular price = $100
• regular markup = 100%

A 20% discount makes the price $80:

• profit = $30
• realized markup = $30 / $50 = 60%
• realized margin = $30 / $80 = 37.5%

If a pricing sheet stores only the original markup, it can materially overstate the economics of discounted orders.

Markup is not automatically a pricing strategy

A uniform markup rule can be useful as a starting heuristic, but it ignores:

• willingness to pay
• competitor/reference prices
• price elasticity
• inventory risk
• category norms
• shipping/fulfillment economics
• return rates
• acquisition cost
• psychological price points

A product with a 150% markup can still be economically weak after other costs. A product with a 40% markup can be excellent if it turns quickly and has low service/acquisition cost.

Keystone pricing is a special markup heuristic

Traditional keystone pricing doubles wholesale cost: price = cost × 2 If cost is $50 and price is $100:

• markup = 100%
• gross margin = 50%

Calling keystone "a 50% markup" is incorrect. The 50% number is the resulting gross margin, not the markup.

Markup versus multiplier

A price multiplier of 2.0 means: price = cost × 2 That corresponds to 100% markup, because price exceeds cost by one full cost amount. This vocabulary matters because teams sometimes say "2x markup" when they mean "2x price multiplier." Write the formula rather than relying on ambiguous shorthand.

The formula

**Markup = (selling price - cost) / cost × 100%**

Worked example

A product costs $40.

• A 50% markup adds:

• $40 × 50% = $20

• Selling price becomes:

• $40 + $20 = $60

• Profit is $20

• Markup is:

• $20 / $40 = 50%

• Gross margin is:

$20 / $60 = 33.3% Both percentages describe the same $20 of gross profit. They answer different questions.

What passes and what does not

• For target gross margin:
• Price = cost / (1 - target margin)
• Shopify's current pricing guidance explains this margin-based formula
• For a $30 cost and 50% target margin:
• $30 / (1 - 0.50) = $60
• That $60 price is a 100% markup and a 50% margin

Common mistakes

1. The first produces 33.3% margin; the second requires 100% markup
2. That is margin
3. Discounts change the actual markup earned
4. Markup covers only the chosen product cost basis. Other expenses still matter
5. Uniform arithmetic does not guarantee sensible market pricing

Questions we get asked