Policy says 40% markup—what list price on EUR 35 cost?
EUR 35 × 1.40 = EUR 49. Finance will see 28.6% margin at that price—confirm both thresholds.
ZBI Business Control Library
Markup
Markup: plain-English definition, formula, worked example, how to interpret the result, peer-based benchmark guidance, common mistakes, and management actions in the ZBI Business Control Library.
What is Markup?
Markup percent is profit on cost—(selling price minus cost) divided by cost. EUR 50 price and EUR 35 cost is 42.9% markup and 30% margin on the same deal. IndustriServis d.o.o. in Rijeka uses markup in MRO categories because buyers negotiate in cost-plus language; both percentages sit on every price list row so sales and finance do not talk past each other.
Why Markup matters
When procurement negotiates 5% cost down but sales holds price, markup rises and margin percent rises too—but if sales cuts price 5% while cost is flat, markup collapses faster than margin percent suggests to non-finance managers. Category managers comparing supplier quotes on markup while finance models margin creates double vocabulary and double errors. Wrong markup on a fast-moving MRO line with 4,000 SKUs compounds into list prices that underrecover rent and service cost. Customers on cost-plus contracts feel markup changes immediately in renewal talks—have the cost evidence ready.
Formula and variables
Markup % = (Selling Price − Cost) ÷ Cost × 100
Selling price — list or net unit price per deal policy.
Cost — landed product cost used in the price list.
Excel: =IFERROR((B2-B3)/B3*100,0)
Real business example
IndustriServis d.o.o., a maintenance supplies distributor in Rijeka, sets list on SKU #4420: selling price EUR 50; landed cost EUR 35. Markup % = (EUR 50 − EUR 35) ÷ EUR 35 × 100 = 42.9%. The category manager targets 40% markup on MRO fasteners; this SKU clears the band. Finance notes margin is 30% on the same numbers—both are logged in the price master. When a key account asked for 35% markup (26% margin), procurement blocked the change until landed cost was reconfirmed—avoiding a EUR 12k annual hole on 4,000 units.
How to interpret the result
Markup is cost-relative; margin is price-relative—same deal, two percentages.
- 42.9% markup on EUR 35 cost is EUR 15 gross per unit before fixed overhead.
- Raising markup from 40% to 45% on EUR 35 cost moves price from EUR 49 to EUR 50.75—small cost, large revenue effect at volume.
- Cost-plus contracts should state whether markup is on latest cost or standard cost.
- High markup on low-cost items can still be low euros per line on the invoice.
Benchmark context
MRO distribution often targets 35–50% markup by category; manufactured parts sold direct may plan 25–40% depending on service intensity. Benchmark against your category policy bands and against last year's realized markup on the same supplier—not a universal 50%. Trend: markup up 2 points with flat margin percent usually means cost fell; markup flat with falling margin means price erosion.
Red flags
- Average markup below category floor for two months—automatic price list drift or rogue discounting.
- Markup hero on items with 200% inventory carrying cost—high percent, negative euros after holding.
- New buyer sets markup 10 points below predecessor on top 100 SKUs—margin hole appears next quarter.
- Cost-plus customer audit finds markup on outdated cost—rebate claims and relationship damage.
- Web shop markup differs from ERP price list—customers arbitrage channels.
Common mistakes
- Sales quotes 35% thinking margin while policy meant 35% markup—EUR 50 / EUR 35 confusion.
- Applying one markup percent to all categories regardless of handling and return cost.
- Using ex-works supplier cost while competitors markup on landed cost.
- Updating markup targets without recalculating list prices in the ERP.
- Double-counting freight in cost and again in a separate markup line.
What should management do next?
- Store markup and margin percent side by side on every active price list row.
- Category review quarterly: realized markup vs policy band by supplier.
- Auto-flag SKUs where cost change moved markup more than 3 points without price update.
- Train inside sales on EUR 50 / EUR 35 example before peak season hiring.
- Lock cost-plus renewal formulas to documented cost build-up six weeks before renewal.
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FAQ
Competitor undercuts our list—cut markup or cost?
Model contribution first. Sometimes procurement cost-down buys markup room without price war.
Can we use different markup bands by customer tier?
Yes if service cost differs. Document tiers so key accounts do not inherit wholesale markup on retail service.
Markup rose after cost drop—must we pass savings to customers?
Contract dependent. On open market SKUs, competitive scan decides; on cost-plus, pass-through is mandatory.
How do we audit 4,000 SKUs for markup compliance?
Exception report: SKUs outside band, sorted by annual revenue—top 200 cover most euros at risk.
Summary
Markup percent is (price − cost) ÷ cost. Use it with margin percent in the same breath, keep category bands explicit, and update list prices when cost moves.
Reviewed by ZBI Business Control Library · Last updated 2026-06-15