As a business owner, you know that the success of your business depends on turning a profit. In order to do that, you need to set fair prices that factor in the costs of producing and packaging your products.
With the free Markup Calculator from FreshBooks, you are able to calculate your ideal markup price to ensure you’re always in the black. With these numbers in mind, you’ll be better prepared to master your business accounting, tackle your taxes and scale up your business.
FreshBooks accounting software makes it easy to pull in all of the information needed to calculate your ideal markup price, including:
- Product costs
- Markup percentage
Once you have this information, simply plug it into the free Markup Calculator to calculate markup in a matter of seconds. You don’t have to be an accounting pro to get started.
Use the FreshBooks Markup Calculator to:
- Add up the true cost of your products (manufacturing, packaging, shipping, etc.)
- Calculate the selling price by setting your desired markup percentage (%)
- Generate your ideal markup price in order to turn a profit
Even if math isn’t your strong suit, this tool makes it easy for you to stay on top of your numbers and take your accounting into your own hands.
Whether you sell online or in a retail store, you can set the perfect price for each product. Then, you can rest assured that you’ll turn a profit every time you make a sale.
What is the Formula to Calculate Markup Price?
The markup price is the difference between the selling price or a product or service and the total cost. In order to make a profit on every good or service sold, you want to charge a price that’s a percentage above how much it costs (manufacturing, packaging, etc.).
Therefore, a markup definition is the amount that is added to the wholesale price of a product or service in order to cover overheads and turn a profit.
Retail markup percentage refers to the retail markup as a percentage of the unit cost of a product. This is calculated by taking the retail markup and dividing the value by the wholesale cost of the product. The amount left over is the retail markup percentage.
Therefore, the formula to calculate the markup price is:
MARKUP = SELLING PRICE – COST
While you can calculate markup by hand, it’s easier to use a free Markup Calculator to do the work for you. Simply plug in the cost and the markup percentage, and the Markup Calculator will calculate your margins, revenue, and profit.
Sales markup calculators can calculate a reasonable markup for you based on cost and profit. It’s an easy way to ensure that your business will be in the black, without overextending your funds.
Save yourself valuable time and money, and get started on building up your business without any unnecessary hassle.
What is a Good Markup Percentage?
While there is no set “ideal” markup percentage, most businesses set a 50 percent markup.
Otherwise known as “keystone”, a 50 percent markup means you are charging a price that’s 50% higher than the cost of the good or service.
However, there’s a simple formula you can use to calculate a good markup percentage for your business:
MARKUP PERCENTAGE = (SELLING PRICE – UNIT COST) / UNIT COST x 100%
Simply take the sales price minus the unit cost, and divide that number by the unit cost. Then, multiply by 100 to determine the markup percentage.
For example, if your product costs $50 to make and the selling price is $75, then the markup percentage would be 50%: ( $75 – $50) / $50 = .50 x 100 = 50%.
Charging a 50% markup on your products or services is a safe bet, as it ensures that you are earning enough to cover the costs of production plus are earning a profit on top of that. Too small of margins and you may barely be earning money on top of the costs of making the product.
Using the markup percentage method means you aren’t just adding a flat dollar amount to each product you sell. It means more flexibility and gives you a better understanding of the cost + labor value in the long run.
Use the free Markup Calculator to calculate the ideal markup price for your products or services.
Feeling better about your markup? Next, use FreshBooks to log and invoice those expenses.
What is the Average Markup Price?
Since markup is the difference between the selling price and the cost of the product, there is no such thing as an average markup price. Rather, there is an average markup percentage–which is typically 50%.
For example, two businesses may sell different products, both at a 50% markup
If Product A costs $10, the marked-up selling price would be $15 ( $10 x .50 = $5 + $10 = $15 ).
If Product B costs $20, the marked-up selling price would be $30 ( $20 x .50 = $10 + $20 = $30).
In these examples, you can see how two products that cost different amounts will also end up at different selling prices, even if the markup is the same (50%).
To calculate the selling price for your products, simply use the free Markup Calculator. All you’ll need to do is plug in the cost and your preferred markup percentage, and the calculator will generate the selling price for you.
Markup Percentage vs Gross Margin: What’s the Difference?
The markup percentage is calculated by subtracting the unit cost from the selling price, dividing by the unit cost and multiplying times 100. But there’s another way to understand markup: as the ratio of gross profit to the sales price.
The gross profit margin is the profit margin for a specific sale and is calculated by subtracting the cost of goods sold (COGS) from the revenue.
The difference is typically understood as the percentage of revenue. The markup percentage, on the other hand, is shown as the percentage of cost:
Markup Percentage = percentage of cost
Gross Margin = percentage of revenue
For example, if you have a product that sells for $10 (revenue) but costs you $5 (cost), your gross profit is $5 and your gross margin is 50%: ($10 – $5) / $10 = .50
The markup percentage, on the other hand, would be calculated by dividing the gross profit ($5) by the sales price ($10), which coincidentally would also equate to 50%: $5 / $10 = .50
Therefore, gross margin and markup are simply two different accounting terms that show different information by analyzing the same transaction, just in a different way.
Calculating markup on your products or services can get a little confusing, especially if you are new to business accounting. However, it’s super important that you stay on top of your numbers so you can make informed business decisions.
At FreshBooks, we aim to help business owners like you take control of their accounting, without the confusion. That’s why we offer the free Markup Calculator and powerful accounting software to make managing your books a breeze.
Here are some examples of the markup formula in action to help you calculate markup for your own business:
Calculate Markup on Products
Imagine you’re a business owner who sells custom-made socks that have creative designs and colors.
It costs you $3 to have a single pair of socks made by the manufacturer. You also pay $2 per pair for packaging with your logo on the box.
You know you want to charge a 50% markup on each pair of socks in order to turn a profit.
How much should you sell each pair of socks for?
Cost: $3 (manufacturer) + $2 (packaging) = $5
Formula: Cost x .50 = Margin + Cost = Selling Price
Result: $5 x .50 = $2.50 + $5 = $7.25
New Selling Price: $7.25
With a markup percentage of 50%, you should sell your socks at a $2.50 markup, or a total price of $7.25. That means you will earn a profit of $2.50 on every pair of socks sold.
Calculate Gross Profit Margin on Services
Say you are a service provider that offers legal services to small businesses.
Your average package (business licensing, contract writing, etc.) sells for $500. However, the cost of hiring your legal assistant plus the legal tools you use equates to $150 per package.
What is your gross profit margin on every legal package sold?
Revenue: $500 per legal package
Cost: $150 for contractor and tools
Formula: (Revenue – Cost) / Revenue
Result: ($500 – $150) / $500 = .70
Gross Profit Margin: .70 x 100 = 70%
Larger profit margins (over 50%) means you are making more money on every service or product sold. That means more money for you to invest back into your business.
Knowing your markup, markup percentage and profit margin numbers are the best way to ensure your business is profitable. This will help you make better, more informed business decisions.
Now that your markups are sorted, use FreshBooks to log and invoice those expenses.