Markup is how much you add on top of a product's cost to set its price, expressed as a percentage of that cost. Multiply the cost by one plus the markup and you have the selling price. An $18 product with a 150% markup sells for $45, earns $27 of gross profit and has a 60% gross margin.
Markup is the natural way to set a price, because you start from what you know: the cost. The trouble starts when the markup gets read as a margin. They use the same profit but divide it by different numbers, so a markup always looks bigger than the margin it produces.
How to calculate markup and selling price
The calculator works forwards, from cost to price:
Selling price = cost of goods × (1 + markup %)
And backwards, if you already have a price:
Markup % = (selling price − cost of goods) ÷ cost of goods × 100
- Cost of goods is what one unit costs you to make or buy, including inbound freight, duties and packaging that ships with every unit.
- Markup % is the amount added on top of that cost, as a share of the cost. A 100% markup doubles the cost.
- Gross profit per unit is the selling price minus the cost.
- Gross margin is that gross profit divided by the selling price. The calculator shows it so you never have to convert by hand.
Markup worked example
These are the calculator's default inputs. Replace them with your own above.
| Input or result | Value |
|---|---|
| Cost of goods | $18 |
| Markup | 150% |
| Selling price | $18 × 2.5 = $45 |
| Gross profit per unit | $45 − $18 = $27 |
| Gross margin | $27 ÷ $45 = 60% |
The $27 of profit is 150% of the cost but only 60% of the price. Both figures are correct. The second one is the one your profit and loss statement will show.
Markup to margin conversion table
To convert a markup to a margin, divide the markup by one plus the markup (as decimals): margin = markup ÷ (1 + markup). Going the other way, markup = margin ÷ (1 − margin).
| Markup | Gross margin | Price on an $18 cost |
|---|---|---|
| 25% | 20% | $22.50 |
| 50% | 33.3% | $27 |
| 100% | 50% | $36 |
| 150% | 60% | $45 |
| 200% | 66.7% | $54 |
| 300% | 75% | $72 |
Notice the shape. Each extra 100 points of markup buys less margin than the last. Going from 100% to 200% markup adds 16.7 points of margin. Going from 200% to 300% adds only 8.3. Margin can approach 100% but never reach it, while markup has no ceiling.
Markup vs margin: the common confusion
The confusion comes from a shared word: both are "percent profit". Say a supplier, a wholesale buyer or a spreadsheet tells you a product carries "50%". If that's markup, your margin is 33.3%. If that's margin, your markup is 100%. On an $18 cost, that's the difference between a $27 price and a $36 price.
The costly version of this mistake happens with discounts. If you price at a 50% markup and then run a 30% off sale, you aren't left with 20% of anything. Your margin was 33.3% of the price, and the discount comes off the price, so a $27 product sells at $18.90 and you've made 90 cents on an $18 cost before shipping or fees.
Our rule: price with markup, plan with margin. Markup is fine for turning a cost into a first price. Every decision after that, from discounts to ad budgets, should use margin, because revenue is what your reports and your costs are measured against. The gross margin calculator runs the same maths from a price you've already set.
How to read your result
Treat the selling price the calculator gives you as a floor for your thinking, not the answer.
- Check the margin against your per-order costs. Add shipping, payment fees and your average discount per order. If those take up most of the gross profit, the markup is too low for how you sell, even if it looks generous.
- Check the price against what customers see. A cost-plus price ignores what the product is worth to the buyer. If your calculated price sits well below what similar products sell for, you may be leaving margin on the table.
- Run your discount through it. Enter the discounted price in the gross margin calculator to see what a sale really leaves you.
- Compare markups across your range. Products with the lowest markup in your own catalogue are the first to review.
What moves markup and margin
- Price, tested properly. A higher price moves margin directly, but conversion rate can move with it. When Mountain Ice raised prices 20%, conversion settled from close to 7% to a steady 6%, against a break-even of 5.83%. Run the break-even maths before you change a price. Our ecommerce pricing strategy guide shows how.
- Landed cost. Lower unit costs at higher volumes, cheaper inbound freight and fewer duties raise margin at the same price.
- Perceived value. Better product pages, bundles and offers let you hold a higher price without losing buyers. Our Teardown reviews how your store presents value.
- Discount discipline. Every discount lowers the effective markup. Track the average price customers actually pay.
Common markup mistakes
- Calling markup "margin". If the number is over 100%, it's markup.
- Using factory cost only. Freight, duties and packaging belong in the cost you mark up.
- Marking up to a margin target. If you want a 50% margin, you need a 100% markup, not a 50% one. Use the table above.
- Stopping at gross margin. Shipping, fees and discounts come after markup. Check what an order really contributes with the contribution margin calculator.
- One markup for the whole catalogue. A flat markup ignores what each product is worth to the buyer and what it costs to ship.
Where to go next
Once your price is set, the Shopify profit calculator shows what a full month looks like after ads and fixed costs. You can find every tool on our calculators page. If you want a second pair of eyes on pricing and the store together, our Gameplan puts the fixes in order.