Finding Markup and Markup Percentage

Markup is a business term. Markup is also called the price spread. Markup is the difference between the cost price of a commodity and the price it is sold at. It is measured in percentage. With the use of markup, the manufacturers can cover the capital required for creating the product and make a profit. Markup is not calculated in terms of Rs or amount but is calculated in percentage.

It is important to know the markup percentage formula and how to calculate markup percentage for solving the profit loss section of the CMAT paper.

Markup Percentage

Markup percentage is the percent of profit acquired on a particular commodity or a service. It is a percentage over the cost price. Cost price is the price for which type vendor purchased the commodity; selling price is the price at which he sells it to the customer. For example, suppose an umbrella costs 200 Rs. And a seller sold it for 300 Rs. Here the markup percentage will be 50%.

Markup percentage is just the opposite of the discount percentage. It is mostly used to determine how much rise should be made in the cost price to make a particular amount of profit on it. Let us see how to calculate markup percentage.

Markup Percentage Formula 

The questions on markup percentage in CMAT can be quickly solved and could gain you marks easily. Knowing the markup percentage formulas can help you with this.

To calculate the markup, use the following formula.

Markup = Selling price – cost price

Here, we find out the amount of markup and not the percentage.

The type of questions that could be asked on the above formula is as given below.

•  Given the selling price and cost price, find the markup amount
• Given the markup amount and cost price, find the selling price
• Given the markup amount and selling price, find the cost price.

Let us take an example,

Suppose a seller has acquired a product at 50 Rs, and he sells it at a price of 70 Rs. Find the markup amount.

 Markup= Selling price – cost price

markup = 70- 50 = 20.

Hence the markup amount here will be 20 Rs.

To know how to calculate markup percentage, refer to the following formula.

Markup percentage= ((Selling price- cost price) / Cost price) × 100

So, markup percentage is basically,

Markup percentage= (Markup/ Cost price) × 100

Let us take an example,

Suppose an item was procured by the seller at the cost price of 75 and was sold at a selling price of 100. Now, how to calculate markup percentage? According to the above percentage,

Markup Percentage = ((100-75)/75) × 100)

= ((25/75) × 100)

= 0.3333 × 100

= 33.33 %

Hence the markup percentage for the above commodity will be 33.33 %.

The Difference Between Markup Percentage and Gross Margin

While the markup percentage concept may sound similar to the gross margin, there is a difference between them both.

However, the markup percentage formula can also include gross profit as it can be calculated with the help of the gross profit.

Markup = Ratio of gross profit to the selling price

Markup and Profit Margin

The markup percentage also helps us to calculate the profit margin for a product.

The relation between profit margin and the markup is stated by the below-given formula.

Selling price – Cost price = Selling Price × Profit Margin

Upon this formula, the following type of questions could be asked.

• Given the profit margin and the selling price, find the cost price of the product
•  Give the selling price and the cost price, find the profit margin of the product
•  Given the cost price and the profit margin, find the selling price of the product

Now let us see how the above formula for profit margin is related to the markup percentage formula. As stated above,

Selling price – Cost price = Selling Price × Profit Margin

Therefore,

Profit margin = (Selling price- cost price)/selling price

Profit margin = 1- (1/ markup +1)

To simply further, 

Profit margin = markup / (1 + markup)

Note: Remember that in this formula, the markup is considered in the form of percentage and not amount.

Let us take an example,

Consider that the selling price of a product is 100 and the cost price is 70. Find the profit margin.

First, let us calculate the markup,

Markup percentage= ((Selling price- cost price) / Cost price))

= ((100-70)/70)

= (30/70)

= 0.428

Profit margin = markup / (1 + markup)

= 0.428/ (0.428+1)

= 0.428 / 1.428

= 0.299

= 0.30

Hence, the profit margin here is 30 %.

Such is the concept of markup percentage, markup percentage formula, and how to calculate markup percentage.

Conclusion

Markup percentage is the measure of profit acquired on a commodity or service in the form of a percentage. Calculating the markup helps the manufacturer or the seller to cover the manufacturing cost of the item and gain profit after selling the item. Markup is an important topic for the CLAT exam.

There are formulas to calculate the markup and markup percentage based on selling price and cost price. Markup = selling price – cost price. Markup is also related to the profit margin and the gross margin of the product. In markup questions, you either need to find markup of cost and selling price.