Formula to Calculate Markup

Markup formula calculates the amount or percentage of profits derived by the company over the cost price of the product and it is calculated by dividing the profit of the company by the cost price of the product multiply by 100 as it is shown in the percentage terms.

Markup basically refers to the difference between the average selling price per unit of a good or service and the average cost incurred per unit. Conversely, it can be said that it is the additional price over and above the total cost of the good or service, which is basically the profit for the seller. Mathematically it is represented as,

Markup = Average Selling Price per Unit – Average Cost per Unit

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For eg:
Source: Markup Formula (wallstreetmojo.com)

Another formula that can be used based on the information available in the income statement, wherein the calculation of markup is done by initially deducting the cost of goods sold from the sales revenue and then dividing the value by the number of units sold. Mathematically it is represented as,

Markup Formula= (Sales Revenue – Cost of Goods Sold) / Number of Units Sold

Although the former formula is more popularly used, the latter can be as useful as the former since the information is easily available from the income statement.

Markup Calculation (Step by Step)

Below are the steps for markup calculation –

The formula for markup, in fact, is very simple. It is because the entire set of information required for its calculation is already contained in the income statement. The first step in the calculation of markup from the income statement is to figure out the sales revenue and the cost of goods soldThe Cost Of Goods Sold The cost of goods sold (COGS) is the cumulative total of direct costs incurred for the goods or services sold, including direct expenses like raw material, direct labour cost and other direct costs. However, it excludes all the indirect expenses incurred by the company.read more The cost of goods sold (COGS) is the cumulative total of direct costs incurred for the goods or services sold, including direct expenses like raw material, direct labour cost and other direct costs. However, it excludes all the indirect expenses incurred by the company.read more The cost of goods sold (COGS) is the cumulative total of direct costs incurred for the goods or services sold, including direct expenses like raw material, direct labour cost and other direct costs. However, it excludes all the indirect expenses incurred by the company.read more. Now, also figure out the number of units sold during the accounting periodAccounting Period Accounting Period refers to the period in which all financial transactions are recorded and financial statements are prepared. This might be quarterly, semi-annually, or annually, depending on the period for which you want to create the financial statements to be presented to investors so that they can track and compare the company's overall performance.read more Accounting Period refers to the period in which all financial transactions are recorded and financial statements are prepared. This might be quarterly, semi-annually, or annually, depending on the period for which you want to create the financial statements to be presented to investors so that they can track and compare the company's overall performance.read more Accounting Period refers to the period in which all financial transactions are recorded and financial statements are prepared. This might be quarterly, semi-annually, or annually, depending on the period for which you want to create the financial statements to be presented to investors so that they can track and compare the company's overall performance.read more.
Now, divide the sales revenue and the cost of goods sold by the number of units sold to get the average selling price per unit and the average cost per unit, respectively.

Average selling price per unit = Sales revenue / No. of units sold.

Average cost per unit = cost of goods sold / No. of units sold
Finally, the calculation of markup can be done by deducting the average cost per unit from the average selling price per unit.

Examples

You can download this Markup Formula Excel Template here – Markup Formula Excel Template

Example #1

If a product is sold for $200 per unit and cost per unit of production is $130, then the calculation of markup will be,

= $200 – $130 = $70

Example #2

Let us consider an example to calculate the markup for a company called XYZ Limited. XYZ Limited is in the business of manufacturing customized roller skates for both professional and amateur skaters. At the end of the financial year, XYZ Limited has earned $150,000 in total net salesNet Sales Net sales is the revenue earned by a company from the sale of its goods or services, and it is calculated by deducting returns, allowances, and other discounts from the company's gross sales.read more for the sale of 1,000 units along with the following expenses.

Salaries: (+) $50,000
Rent: (+) $20,000
Cost of Goods Sold = (Salaries + Rent)
Cost of Goods Sold = $70,000
Therefore, Average selling price per unit = $150,000 / 1,000 = $150 and
Average cost per unit = $70,000 / 1,000 = $70

Finally,

Markup = $150 – $70 = $80

Markup Calculator

You can use the following calculator

Average Selling Price Per Unit
Average Cost Per Unit
Markup Formula

Markup Formula =	Average Selling Price Per Unit – Average Cost Per Unit
0 – 0 =	0

Markup Calculation in Excel

Now let us take the Apple Inc.’s published financial statement Example for the last three accounting periods. Based on publicly available financial informationFinancial Information Financial Information refers to the summarized data of monetary transactions that is helpful to investors in understanding company’s profitability, their assets, and growth prospects. Financial Data about individuals like past Months Bank Statement, Tax return receipts helps banks to understand customer’s credit quality, repayment capacity etc.read more, the Markup of Apple Inc. can be calculated for the accounting years 2016 to 2018.

Given below excel template contains the information required for the calculation.

We have calculated average selling price and average cost price using the below-given formula-

So the below-given template has the values of Average selling price and average cost price for the calculation of markup.

In the below given excel template, we have used the markup calculation.

So, the Markup of Apple Inc. will be-

From the above table, it can be seen that the markup per unit of various products for Apple Inc. has been continuously improving from $305 to $364 during the above mentioned period. This indicates the market strength that Apple Inc. relishes.

Uses

The understanding of markupMarkup The percentage of profits derived over the cost price of the product sold is known as markup. It is determined by dividing the company's total profit by the cost price of the product and multiplying the result by 100.read more is very important for a business as it governs the pricing strategy of a company, which is one of the most significant parts of a business. The markup of a good or service should be adequate enough to cover all the operating expensesOperating Expenses Operating expense (OPEX) is the cost incurred in the normal course of business and does not include expenses directly related to product manufacturing or service delivery. Therefore, they are readily available in the income statement and help to determine the net profit.read more and make a profit, which is the ultimate objective of any business. The extent of markup permitted to a retailer can determine the amount of money he can make from selling every unit of the product. Higher the markup, higher will be selling price to the consumer. And more the money the retailer will make and vice versa. The selling price that the retailer charges can be an indicator of the strength of that retailer in the market.

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Markup Formula