# What is markup?

**Markup** is the additional amount added to the wholesale cost of a good or service to determine its selling price.

In simple words, markup is the difference between what a seller spends to produce an item and the price they sell it for. This difference allows the seller to cover their expenses and generate a profit.

There are two ways to calculate markup:

1. **Markup rate (%)** = (Selling price – Wholesale cost) / Wholesale cost * 100%
2. **Markup on cost (%)** = Markup amount / Wholesale cost * 100%

#### Note

_Markup is usually confused with profit margin. While markup represents the percentage increase over the wholesale cost, profit margin reflects the percentage of profit earned relative to the selling price; and it considers all business expenses, not just the cost of goods sold._

## Frequently asked questions

### How does markup impact pricing decisions?

Markup plays a crucial role in setting selling prices. Businesses consider factors like desired profit margin, competitor pricing, and market demand when determining an appropriate markup percentage.