Welcome back to Shopping and Spending with Percentages! So far in this course, we have tackled discounts, sales tax, tips, and mental math estimation — all from the buyer's perspective. Now, in lesson five of six, we are stepping behind the counter to see how sellers set their prices. In this lesson, you will learn how to calculate markups on cost, the method businesses use to build a selling price that covers their expenses and earns a profit.

In our earlier lessons, we worked with percent decreases. A discount takes a percentage off a price, making it smaller. A markup does the opposite: it adds a percentage on top of a cost, making the price larger. If you have ever wondered why a water bottle that a store buys for $5 ends up on the shelf at $8, the answer is markup.

Here is the key idea: a store pays a cost (also called the wholesale price) to acquire an item, then increases that cost by a markup percent to arrive at the selling price the customer sees. The markup covers the store's rent, wages, and profit.

Calculating a markup follows the same percent-of-a-number pattern we have used throughout this course. There are two small steps:

1. Find the markup amount: multiply the cost by the markup percent (written as a decimal).
2. Add it to the cost: the result is the selling price.

Written as formulas:

Suppose a clothing store buys a jacket at a cost of $60 and applies a 45% markup. Let's find the selling price.

Step 1 — Find the markup amount. Convert 45% to a decimal and multiply:

Step 2 — Add the markup to the cost:

The store would set the jacket's selling price at .

Just as we combined steps when calculating sales tax and tips, we can do the same with markups. Because we keep 100% of the cost and add the markup percent on top, the selling price equals the cost times $(1 + \text{Markup Rate})$.

One common mistake is applying the markup percent to the selling price instead of the cost. The markup percent is always calculated on the cost. Using the wrong base gives a different — and incorrect — answer.

For example, if a bakery's cost for a cake is $20 and the markup is 75%, the correct selling price is:

If someone accidentally applied 75% to the $35 selling price to "check" the markup, they would get $35 × 0.75 = $26.25, which does not match the $15 markup we actually added. Always start from the cost when calculating markup.

Markup is simply a percent increase applied to a cost or wholesale price to determine a selling price. Whether you use the two-step method or the one-step multiplier shortcut, the process mirrors the percent skills we have been building throughout this course. The key rule to remember: the cost is always the base.

Up next, you will put these ideas into action with hands-on practice. You will compute selling prices, fill in missing values, and even play the role of a small-business owner setting prices for a product lineup. Let's see those markup skills in action!