Glossary: Pricing
Markup
Markup is the amount added to a product's cost to reach its selling price, usually shown as a percentage of cost. A $10 item sold at $15 has a 50% markup, which is a 33% margin, because margin is measured against the selling price.
In detail
The two formulas are simple. Markup % = (price - cost) / cost x 100. Margin % = (price - cost) / price x 100. Mixing them up costs money: a seller who wants a 50% margin but applies a 50% markup ends up with a 33% margin.
To reach a target margin, divide the cost by one minus the margin. For a 40% margin on a $12 cost, the price is 12 / 0.6 = $20, which is a 66.7% markup. Working from margin keeps you from underpricing when you set wholesale prices.
In a wholesale chain each party adds its own markup. The brand sells to a retailer at the wholesale price, and the retailer sells to shoppers at the retail price. A retailer that doubles its cost has a 100% markup and a 50% margin, which is why keystone pricing is a common starting point. Work backwards from the retail price and the margin the retailer needs, then check that your wholesale price still leaves you a margin.
Count more than the product cost. Freight, packaging, payment fees, returns, discounts and the cost of carrying net terms all reduce profit, so a markup on product cost alone overstates it. If you give different buyer groups different prices, check that the lowest tier still sits above your floor.
Example
A bag costs $12 to make. At a 66.7% markup the wholesale price is $20, a 40% margin. A retailer that doubles the $20 sells it for $40 and keeps a $20 margin, 50% of the retail price.
Related use cases
Learn more
Read the Wholesale pricing hub for guides, use cases and setup docs, or the complete Shopify B2B guide.