What does "markup" refer to in a retail context?

In a retail context, "markup" refers to the amount added to the cost of a product in order to determine its selling price. This figure is crucial for retailers as it helps set prices that cover costs and generate profit. By calculating markup, retailers can ensure that they not only recover the costs associated with acquiring or producing the goods but also achieve a specific profit margin.

When determining markup, businesses typically consider their cost price—the amount they paid for the product—and then add a certain percentage or dollar amount to arrive at the final selling price. This process is fundamental for pricing strategies and is a key element in retail finance. Understanding markup is essential for successful merchandising since it impacts inventory management, sales strategies, and overall profitability.