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Markup vs Discount Pricing
Markup raises a cost-based starting price; discount lowers a selling price. Equal percentages do not cancel because they use different bases.
Updated 16 October 2026 • Tools by Layna Editorial Team • General information
Cost is the markup base; price is the discount base
Markup percentage = (selling price − cost) ÷ cost × 100. Discount percentage = (original selling price − sale price) ÷ original selling price × 100. A 25% markup is applied to cost; a 25% discount is applied to the larger selling price.
For cost C, markup m and later discount d expressed as decimals, sale price = C × (1 + m) × (1 − d). Profit before any costs not included in C is sale price − C.
Worked example: 25% up and 25% down loses money
A product costs $80. Adding 25% markup sets its price at $80 × 1.25 = $100. A later 25% discount sets the sale price at $100 × 0.75 = $75.
The final price is $5 below the $80 cost, before other expenses. The original $20 increase and later $25 reduction differ because their percentage bases differ.
To return a $100 price to an $80 cost, the maximum discount before this cost-only break-even is ($100 − $80) ÷ $100 × 100 = 20%.
Compare the pricing decisions
| Decision | Calculation | What to check |
|---|---|---|
| Set a price from cost | Cost × (1 + markup) | Whether the cost includes relevant expenses |
| Calculate a sale price | Original price × (1 − discount) | Use the genuine original price and the correct discount |
| Protect a target margin after discount | Required regular price = cost ÷ [(1 − margin) × (1 − discount)] | Margin and discount are decimals below 1 |
| Check promotion contribution | Sale revenue − costs triggered by the sale | Payment fees, fulfilment and returns can change the result |
Plan the promotion before applying it
Suppose cost is $60, the desired sale margin is 25%, and the planned discount is 20%. The required sale price is 60 ÷ 0.75 = $80. The regular price needed mathematically is 80 ÷ 0.80 = $100.
That calculation tests a proposed price structure; it does not justify inventing a former price or a misleading sale claim. Keep price comparisons accurate and check relevant consumer rules. Use one tax basis for both cost and selling price, and account for costs that vary with revenue.
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Frequently asked questions
Will a 20% markup cover a 20% sale?
No. Cost × 1.20 × 0.80 is 0.96 × cost, so it ends below cost before additional expenses.
How do I find the cost-only break-even discount?
Divide regular-price profit by regular price. For $100 price and $80 cost, the answer is 20%.
Does this include payment fees and postage?
Only if they are included in the cost basis you use. Percentage-based fees may need separate calculation after the sale price changes.
Sources and method
The worked figures are illustrative arithmetic. The references below explain the underlying definitions and limits.