Markup based on selling price (also called margin-based markup) tells you what percentage of your final sale price is profit — a different calculation than markup based on cost, and easy to confuse with it.
The formula
Markup on selling price = (Selling price minus cost) divided by selling price, times 100. A product that costs $40 and sells for $100 has a 60% markup on selling price.
Why this differs from markup on cost
The same product also has a 150% markup on cost — (Selling price minus cost) divided by cost. Same numbers, very different-looking percentage, which is exactly why mixing up the two methods leads to real pricing errors.
Which one to use
Markup on selling price is mathematically identical to gross margin percentage, which makes it useful for comparing directly against your margin targets. Markup on cost is more common in retail and wholesale pricing conversations, since it starts from what you actually paid. Know which one you’re using before quoting or comparing numbers with anyone else.
Markup on selling price vs. markup on cost
Most markup calculations use cost as the base, but some industries — food service is the classic example — calculate markup as a percentage of the selling price instead. Formula: Markup on selling price % = (Selling Price − Cost) ÷ Selling Price × 100. This is mathematically identical to a gross margin calculation, which is exactly why it causes confusion: a “40% markup” quoted this way is not the same number as a 40% markup on cost.
A worked example
Cost $18, selling price $30. Markup on cost: (30 − 18) ÷ 18 × 100 = 66.7%. Markup on selling price: (30 − 18) ÷ 30 × 100 = 40%. Same transaction, two very different-looking percentages depending on which base is used — and both are technically correct calculations, just answering different questions.
Why this matters in practice
Restaurants commonly track “food cost percentage,” which is really cost as a percentage of selling price — the inverse framing of markup on selling price. A target 30% food cost is the same thing as a 70% markup on selling price, or roughly a 233% markup on cost. Knowing which convention an industry or a specific supplier contract uses prevents a significant pricing error.
Common mistakes
- Assuming a quoted markup percentage is always calculated on cost, when the context (especially food service and some retail categories) may mean it’s calculated on selling price.
- Mixing the two conventions within the same internal pricing sheet, making totals impossible to compare across products.
- Not clarifying which base a supplier or franchisor is using before agreeing to a markup target in a contract.
About the Author
Oliver K.G.
Oliver K.G. has 8+ years in pricing strategy and has helped 200+ Amazon FBA sellers, dropshippers, and small business owners optimise their profit margins. He built BizMargin to make gross margin and pricing calculations instant and free. He writes on pricing strategy, gross margin optimisation, and profitability for e-commerce and retail businesses.