What is a mark-up?
- By Book Keeping Pros
- Sources checked 15 Oct 2026
Definition
A mark-up is the amount a business adds to the cost of a product or service to arrive at the price it charges: the difference between what the item costs and what the customer pays. It is often also expressed as a share of the cost, which is why it differs from the profit margin on a sale.
Cost-plus pricing is built on a mark-up. You work out what an item costs to buy or make, then add enough on top to cover the business's running costs and leave a profit. The cost has to be complete, including freight, packaging and labour where they apply, or the mark-up is being added to a figure that is too low.
The same sale can be described by its mark-up or by its margin. Both start from the same profit on the item, but the mark-up is compared with the cost and the margin with the selling price. Whenever the sale makes a profit, the selling price is the larger figure, so the mark-up expressed as a share comes out higher than the margin, as the table below shows.
Mark-up is a pricing figure rather than an account in the books. Sales are recorded at the price charged and the cost of what was sold is recorded separately, so the mark-up is reflected in the gross profit on the profit and loss statement.
In Australia
business.gov.au's glossary describes a mark up as the gap between what a good or service costs and the price it sells for. It gives mark down its own entry, meaning a price cut on a product while a sale or promotion is running.
Its guide to choosing a pricing strategy describes a cost-based approach: add up everything it takes to make and supply the product or service, including materials, labour and overheads, then put a mark-up or margin on top.
The same guide suggests going back over your prices at least once a year and each time your costs or the market shift, and making sure any discounts still leave your costs covered.
Worked example
| Item | Amount (AUD) | As a share |
|---|---|---|
| Cost of the product | 80.00 | |
| Mark-up added to the cost | 20.00 | |
| Selling price | 100.00 | |
| Mark-up as a share of the cost | 0.25 | |
| Profit margin as a share of the selling price | 0.20 |
Illustrative example only: these rows show the method and are not sourced data.
Common mistakes
- Adding a mark-up to the supplier's price alone and leaving out freight, packaging or labour, so the price covers less than the real cost.
- Using the same figure as a mark-up when the goal was a margin, which leaves less profit in each sale than planned.
- Leaving prices unchanged after supplier costs rise, so the mark-up shrinks without anyone deciding it should.
- Running a promotion without checking how much of the mark-up the discount uses up.
Related terms
Related service
Management and cash-flow reports
Monthly reports that show where the business stands.
Sources
- Key financial terms
business.gov.au, Australian Government. Current at 15 October 2026, released 9 July 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Choose a pricing strategy
business.gov.au, Australian Government. Current at 16 October 2026, released 1 October 2026. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.