# How to Mark Up a Price

Instructor: Maria Airth

Maria has a Doctorate of Education and over 15 years of experience teaching psychology and math related courses at the university level.

Marking up prices to cover costs and earn a profit is a common business practice. This lesson explains the standard formula to mark up a price, and provides examples of markups.

## What is a Markup?

If you owned a store, how would you price your products? Would you set arbitrary amounts, or would it be better to have a plan or formula to help you decide how much to charge for each item?

Most businesses use a standard markup formula to determine selling prices. A markup is an amount added to the cost of an item to ensure that it is resold for a profit. Generally, store owners add a percentage of the purchase price in order to set a sales price. By increasing the amount of the sales price, you, as the store owner, make back your investment on each item you sell and are able to make a profit. The amount of profit you make depends on the markup you add to your items.

## Examples

Let's work through a few markup problems together. Imagine that you own a hat store. You don't make the hats; you just buy them from a wholesaler and then sell them at an increased price (a markup).

You buy a case of hats to sell in your store and the wholesale price for each hat is \$3.00. You have set a storewide markup percentage of 25%. How should you price the hats for your store?

The standard formula is S = (M x W) + W, where S equals the sales price, M equals the markup percentage, and W equals the wholesale price.

First you need to find out the percentage amount of the markup; then you can add that to the wholesale price. Remember to move the decimal over to the left two places to change a percent to a decimal in a math formula.

According to the formula, you need to sell each hat for \$3.75, because \$0.75 is the value of the 25% mark up.

An alternative method to calculating a markup is to add 1 to the decimal value of the markup percentage, which gives you the total number to multiply with in the formula.

In this next example, we'll use this alternate method. If the markup percentage is 125%, we multiply the original price by 2.25 (add 1 to 1.25).

Notice here that anything over a 100% markup will more than double the original wholesale price of the item.

One more example; let's say you'd like to sell the hats for \$5.00; what is your markup on them at this selling price?

To figure this problem out, we go back to the same formula, but fill in the sales price variable and the wholesale variable. If you are familiar with algebra, you know that we will need to divide the selling price by the wholesale price.

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