Markup
In short
Markup is the amount you add to the cost of a product or service to set its selling price. It is expressed as a percentage of cost: (price minus cost) divided by cost.
Markup is common in resellers, agencies, and services pricing. Because it is based on cost instead of price, it is easy to confuse with gross margin, and mixing them up can leave you with less profit than planned.
How to calculate markup
Say a reseller buys a license for 60 and sells it for 100. The profit is 40, so markup is 40 divided by 60, or about 66.7 percent. These numbers are an example only.
- Markup percentage: (Selling price minus cost) divided by cost, times 100.
- Selling price from markup: Cost times (1 plus markup rate).
Markup vs. gross margin
Markup is measured against cost; margin is measured against price. In the example above, the same sale has a 66.7 percent markup but a 40 percent gross margin.
- A 50 percent markup gives a 33.3 percent margin.
- A 100 percent markup gives a 50 percent margin.
- Margin can never reach 100 percent, but markup can exceed it.
Where GTM teams meet markup
- Channel and resellers: Partners often add markup to a vendor price. Agree on partner margin and a price floor so deals stay profitable for both sides.
- Agencies and services: Hourly rates are often cost plus markup to cover overhead and profit.
- Pass-through costs: Data, media, or tool costs resold to customers may carry a small markup.
Cost-plus pricing and its limits
Setting price by cost plus markup is simple, but it ignores what buyers value and what alternatives cost. For software with low marginal cost, value-based pricing usually fits better. Use markup as a floor check, not the only input.
Common mistakes
- Using markup when the finance team reports margin, or the reverse.
- Forgetting discounts, which reduce effective markup.
- Applying one markup to every product regardless of demand.
- Ignoring overhead that the markup must cover.
Markup FAQs
What is markup?
Markup is the amount added to the cost of a product or service to set its selling price, usually stated as a percentage of cost. It is calculated as selling price minus cost, divided by cost, then multiplied by 100.
How do you calculate markup percentage?
Subtract the cost from the selling price, divide the result by the cost, and multiply by 100. If something costs 80 and sells for 100, the profit is 20, so the markup is 25 percent.
What is the difference between markup and margin?
Markup is profit as a percentage of cost, while margin is profit as a percentage of the selling price. The same sale always shows a higher markup than margin. For example, a 50 percent markup equals a margin of about 33 percent.
Is markup used in SaaS pricing?
Less often, because software has low marginal cost and is usually priced on value. Markup appears in reseller deals, agency rates, and resold pass-through costs, where a vendor price is increased to cover a partner costs and profit.
