Markup (business)

Markup is the ratio between the cost of a good or service and its selling price. It is expressed as a percentage over the cost. A markup is added onto the total cost incurred by the producer of a good or service in order to cover the costs of doing business and create a profit. The total cost reflects the total amount of both fixed and variable expenses to produce and distribute a product. Markup can be expressed as a fixed amount or as a percentage of the total cost or selling price.Retail markup is commonly calculated as the difference between wholesale price and retail price, as a percentage of wholesale. Other methods are also used.

Below shows markup as a percentage of the cost added to the cost to create a new total (i.e. cost plus).

Another method of calculating markup is based on percentage of cost. This method eliminates the two-step process above and incorporates the ability of discount pricing.

Comparing the two methods for discounting:

These examples show the difference between adding a percentage of a number to a number and asking of what number is this number X% of. If the markup has to include more than just profit, such as overhead, it can be included as such:

or

P = (1+μ) W. Where μ is the markup over costs. This is the pricing equation.

W = F(u,z) Pe . This is the wage setting relation. u is unemployment which negatively affects wages and z the catch all variable positively affects wages.

P = Pe(1+μ) F(u,z). This is the aggregate supply curve. Where the price is determined by expected price, unemployment and z the catch all variable.

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