Markup

Markup is the multiplier applied to cost to reach the selling price. It is not picked by guessing: it comes from adding up everything that needs to fit inside the price — variable expenses, a share of fixed expenses, and the desired profit.

Price = cost ÷ [1 − (variable expenses + fixed expenses + desired profit)]

With a cost of R$ 80, variable expenses of 14% (commission, tax, card fee), a fixed-expense share of 20% and a desired profit of 15%, the divisor is 1 − 0.49 = 0.51. The price comes out to R$ 80 ÷ 0.51 = R$ 156.86, which corresponds to a markup multiplier of 1.96.

Markup is not margin — and confusing them is expensive

This is the most common mistake in small-business pricing. Markup is applied to cost; margin is applied to price. They are different bases:

Whoever doubles the cost and thinks they have a 100% margin actually has 50% — and that difference has already sunk many a store that calculated a discount on the wrong number.

In services, the cost is the billable hour

Anyone selling a service gets stuck on the first step, because there is no merchandise to buy. The cost is the hour. A professional who has R$ 6,000 in monthly costs has 160 hours on the calendar, but usually bills only 60% of them — 96 hours. The real cost is R$ 62.50 per hour, not the R$ 37.50 that dividing by 160 would give. Markup applies to those R$ 62.50. Prorating over the full calendar is what leaves agencies and consultancies fully booked at the end of the month with nothing left over.

Where a single markup fails

• A fixed share on products with different turnover. Applying the same 20% fixed-expense share to an item that turns over 200 times a month and another that turns over 3 times distorts both prices.
• A forgotten channel. A marketplace charges 12% to 20% commission. If that percentage never made it into variable expenses, the markup calculated for the physical store loses money on the digital channel.
• Free shipping. It is a variable expense. Left out of the calculation, it eats exactly the slice meant for the desired profit.
• Market price. Markup tells you how much you need to charge, not how much the customer will accept paying. When the two do not match, the problem is cost or positioning — insisting on the formula will not help.

Markup delivers the price; contribution margin is what checks whether it survived the negotiation.