How to Calculate Markup

Video Transcript

"Hi, I'm Steve Jones, I'm going to tell you how to calculate markup. First of all, what is markup? Well, when we purchase something, as a business, we buy something at a certain price. Then, to make a profit, we sell it. And we sell it to the higher price, maybe we do something with it in between. So what we've got are a purchase price and a sale price. The difference between these two is the difference in price. If we then divide the difference in price by the purchase price, this is what we call the markup. So the question is how do we calculate it? Here's an example. Here's a purchase price, let's say we have purchase price of just a $100. And let's say we sell this thing for $120. This is a nice business. Okay. So a difference in price is $100, $120, is just $20. So for $20, I got my increase in price. But the purchase price was a $100. So the proportion is in fact, 1/5. I make an extra 1/5 of value by marking up the price. Now to work this out as a percentage, which is the normal way it's express, I have to multiply this expression by 100, and as we see, we got 20 times 100 over 100, so that's quite an easy calculation. Our mark up in this case is 20%. So I could say, in business, I mark up all my prices by 20% and then I know that something coming in at $2,000, I'm going to have a 20% markup which is something like $400. I would sell it at $2,400. So this is how markup works."