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Markup

Markup measures how much the net selling price (excluding VAT) exceeds the unit cost. It compares profit to cost, not to revenue. Formula: Markup = (Net Selling Price − Cost) ÷ Cost × 100%

Why It Matters

  • •Markup helps understand pricing structure and unit-level profitability.
  • •It must not be used to compare SKUs as investments because it ignores cycle time, payment terms, and capital requirements.
  • •Confusing markup with ROI often leads sellers to overestimate slow-moving products.

Connection to Capital

Markup does not measure capital efficiency. Two products can have the same markup but very different financial returns if their cash cycles differ. Capital allocation decisions require time-adjusted metrics, not markup.

Related Terms

COGS (Cost of Goods Sold) Revenue Gross Margin (GM%)

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