Markup percentage = (price − cost) ÷ cost. It says how much you add on top of what something costs, as a share of the cost. Turned round, price = cost × (1 + markup): a jar of salsa that costs $3.10 to make, marked up 100%, sells for $6.20. Markup is easy to apply and easy to misread, because the same jar's 100% markup is only a 50% margin, and a markup on the ingredients alone hides the labor and the jar. A salsa maker's prices run from a 54% markup on tortillas for restaurants to 355% on hot sauce at a market. Below is the formula, markup against margin, the salsa maker's channels, the mistake that underprices, and a free calculator.
The short version
- Markup % = (price − cost) ÷ cost; price = cost × (1 + markup).
- Use the full cost: ingredients, packaging and labor, not the ingredients alone.
- Markup is a share of the cost; margin is a share of the price. 100% markup = 50% margin.
- Margin = markup ÷ (1 + markup); markup = margin ÷ (1 − margin).
- Each channel needs its own markup: a grocer's price has to leave the grocer room too.
- TaroStack costs every product from its batches, so the cost under the markup is real. More below.
The formulas
| To find | Formula | Example |
|---|---|---|
| Markup % | (Price − cost) ÷ cost | ($9.00 − $3.10) ÷ $3.10 = 190% |
| Price from a markup | Cost × (1 + markup) | $3.10 × 2 = $6.20 |
| Margin from a markup | Markup ÷ (1 + markup) | 100% ÷ 2 = 50% |
| Markup from a margin | Margin ÷ (1 − margin) | 40% ÷ 0.6 = 66.7% |
"Keystone" is the retail word for a 100% markup, doubling the wholesale price, which gives the shop a 50% margin. How markup and margin compare, and when each is the right one to use, is in markup vs margin.
Markup and margin side by side
| Markup | Is a margin of | Margin | Needs a markup of | |
|---|---|---|---|---|
| 25% | 20.0% | 20% | 25.0% | |
| 50% | 33.3% | 30% | 42.9% | |
| 75% | 42.9% | 40% | 66.7% | |
| 100% | 50.0% | 50% | 100.0% | |
| 150% | 60.0% | 60% | 150.0% | |
| 200% | 66.7% | 70% | 233.3% | |
| 300% | 75.0% | 75% | 300.0% |
A markup can be any size; a margin can never reach 100%. That's why a maker who wants "a 50% markup" and a maker who wants "a 50% margin" end up at different prices: $4.65 and $6.20 for the same $3.10 jar.
An example: a salsa maker's channels
Saguaro Salsa Co., a made-up salsa and tortilla maker in Tucson, Arizona, I use in these examples, sells at a market, to grocers, to restaurants and to shops:
| Product | Sold to | Full cost | Price | Markup | Margin |
|---|---|---|---|---|---|
| Flour tortillas, pack of 10 | Market | $3.25 | $8.00 | 146.2% | 59.4% |
| Flour tortillas, pack of 10 | Grocer | $3.25 | $5.25 | 61.5% | 38.1% |
| Flour tortillas, dozen | Restaurant | $3.90 | $6.00 | 53.8% | 35.0% |
| Jarred salsa, 16 oz | Market | $3.10 | $9.00 | 190.3% | 65.6% |
| Jarred salsa, 16 oz | Grocer | $3.10 | $5.50 | 77.4% | 43.6% |
| Hot sauce, 5 oz | Market | $2.20 | $10.00 | 354.5% | 78.0% |
| Hot sauce, 5 oz | Shops | $2.20 | $5.50 | 150.0% | 60.0% |
The full cost is the ingredients, the jar or bag, the label and the labor. The same jar of salsa carries a 190% markup at the market and 77% to a grocer, and the grocer marks it up again: $5.50 to $8.99 on its shelf, 63.5%. Tortillas take the smallest markups, because they're bought by the pack every week and compared on price; hot sauce takes the biggest, because a 5-ounce bottle is bought as a treat. How shops and distributors stack their own margins on yours is in distributor margin.
The mistake that underprices
Mark up the ingredients alone and the price looks generous and isn't. The salsa's tomatoes, chiles, onions, garlic and lime cost $1.40 a jar. A 200% markup on that is $4.20, a price that sounds like a healthy markup and doesn't cover the $3.10 full cost plus the market's card fee by much: 97 cents left, before the stall fee. The jar, lid and label are 95 cents and the labor 75 cents; they're real costs, and the markup has to sit on top of them. How to build a full cost from a batch is in how to price handmade items for wholesale.
Get the calculator
Download the markup percentage calculator. Two sheets: markup, one line for each product and channel with its full cost and price, where the profit, markup and margin fill in, with a box that turns a cost and the markup you want into a price and its margin; and markup and margin, a table of each as the other. It's an ordinary Excel file with no macros, and it works in Google Sheets, LibreOffice and Numbers.
Where this stops working
A markup is only as good as the cost under it, and costs move: chiles double in a bad season, jars go up 8 cents, a batch comes out 10% short. A price set from last spring's cost at a fixed markup is now a smaller markup on a bigger cost, and the sheet still says 77%.
How TaroStack does it
TaroStack costs every product from its batches, so the cost under the markup is real.
Full cost from the batch. A batch of salsa takes its tomatoes, chiles, jars and labels off stock at what they cost, with its labor minutes, so the cost of each jar includes all of it, and moves when the chiles do.
Margins by product and customer. Margins are reported by product and by customer, on what things actually cost, so the grocer's jars and the market's jars each show what they leave.
Price creep. A report shows which ingredients' prices have crept up, by supplier, so a markup that's shrinking shows before the year's numbers do.
| The job | Spreadsheet | In TaroStack |
|---|---|---|
| The cost of a jar | Typed once | From each batch |
| Chiles going up | Noticed at the till | Price-creep report |
| Markup by channel | Worked out by hand | Margins by customer |
| A batch that came out short | Unnoticed | Good and rejected on the batch |
Recipes, batch costing and margin reports are on every plan, from $49 a month. The first 30 days are free, with no credit card. If you'd like a hand setting up, ask, and we'll do it with you.