Introduction to Markup and Selling Price Strategy
Setting the right selling price isn’t just about covering costs—it’s about making sure your business stays profitable in the long run. For professional service firms, like accountants and bookkeepers, learning how to calculate selling price using markup is key to maintaining healthy margins and avoiding gradual profit loss.
Whether you’re quoting a fixed-fee project, managing a retainer, or billing hourly, getting your markup right gives you the confidence to scale your pricing as client needs evolve. It’s also a crucial part of building pricing strategies that are both competitive and sustainable.
In this guide, we’ll break down how to determine selling price using a clear markup formula, highlight common missteps firms make when adopting cost-based pricing, and explore how tools like Surplus Pricing can simplify the process. If you’ve ever wondered how to price your product or how to find selling price quickly and reliably, you’re in the right place.
What Is Markup and Why It Matters
Markup is the amount—often a percentage—added to the base cost of a product or service to determine its selling price. It ensures your business not only covers its expenses but also generates a profit. For professional service firms, markup typically accounts for labour, overheads, software tools, and any indirect costs required to deliver the work effectively.
Markup and margin often get mixed up—and while they’re closely related, they serve different purposes in your pricing strategy It’s important to distinguish markup from margin:
- Markup is based on cost:
Selling Price = Cost + (Cost × Markup %) - Margin is based on revenue:
Margin = (Profit ÷ Selling Price) × 100
While markup helps you set prices based on cost inputs, margin reveals the actual profit retained from each sale. The difference between your selling price and your service delivery cost—expressed as a percentage—is your margin, and it plays a big role in shaping both profitability and pricing competitiveness.
While markup is typically used in cost-based pricing models to build quotes and ensure costs are covered, it can also serve as a starting point for firms transitioning toward value-based pricing. Margin, meanwhile, is more useful for evaluating overall performance and setting financial goals.
The Formula: How to Calculate Selling Price Using Markup
The basic markup formula is straightforward:
Selling Price = Cost + (Cost × Markup Percentage)
Let’s break it down with a simple example:
- Cost price of service delivery: R10,000
- Markup percentage: 40%
- Selling Price = R10,000 + (R10,000 × 0.4) = R14,000
While the R4,000 added represents your markup, it results in a lower profit margin—around 28.6%—which highlights the key difference between markup and margin. Understanding this gap is essential when pricing services with accuracy and protecting long-term profitability. To determine the selling price accurately, you can apply the formula manually or use a markup calculator to streamline the process.
Using Markup in Real-World Scenarios
In professional services, applying markup isn’t always as simple as adding a flat percentage to costs. Real-world projects often span multiple phases, involve cross-functional teams, or change scope midstream. In these scenarios, markup needs to account for more than just labour—it should also reflect time estimates, service levels, and third-party costs.
Firms often use markup as a starting point to build consistent, cost-aware pricing across varied engagements. However, as services become more complex, many are now moving toward value-based pricing to better capture the outcomes delivered to clients. Surplus Pricing supports this shift by helping firms standardise how markup is applied today, while also enabling smarter, more strategic pricing decisions over time.
How to Apply Markup in Professional Services
Unlike product-based businesses, service firms must contend with variables such as staff utilisation rates, billable hours, and evolving client demands. This means that pricing must account for:
- Blended labour rates across different seniority levels
- Project-specific overheads (e.g., client management time)
- Non-billable efforts such as onboarding or reporting
Markup provides a structured way to account for these factors across different pricing models:
- Fixed-fee pricing: Add the markup amount to the estimated delivery cost, including buffers for overrun. Consider using value-based pricing when the perceived client value exceeds the baseline cost, allowing greater profit potential.
- Retainer pricing: Mark up the cost of retained resources over the duration of the agreement. Where appropriate, align retainers with the value delivered each month, not just time spent.
- Time-based pricing: Set hourly or daily charge-out rates that already incorporate your markup target. For high-impact services, you may also factor in value-based considerations to adjust rates beyond cost alone.
Understanding how to calculate the selling price of a service or deliverable is essential for staying in control over profitability. Whether you’re figuring out how to price your product or how to determine selling price for complex client work, having a consistent method in place is key. Surplus Pricing helps teams apply markup consistently through built-in pricing templates—while also supporting more strategic models like value-based pricing when needed.
Common Mistakes When Using Markup (and How to Avoid Them)
Even experienced firms can misapply markup if pricing isn’t regularly reviewed or aligned with actual cost structures. Here are some common mistakes:
1. Underestimating True Delivery Costs
Failing to include overheads, account management, or software costs can result in setting the selling price too low.
Solution: Build a comprehensive cost base before applying markup. Surplus Pricing enables the capture of indirect costs in your pricing models to avoid this oversight.
2. Applying Flat Markup Across All Services
Different services carry different risk profiles and complexity. A one-size-fits-all markup can skew profit margins across your portfolio.
Solution: Segment your services and apply differentiated markup rules. Surplus Pricing supports pricing by service type, industry, or client tier.
3. Relying on Manual Calculations
Spreadsheets and static templates introduce human error and pricing inconsistency across teams.
Solution: Use pricing software to automate and control markup rules. Surplus Pricing ensures version control and team-wide pricing discipline.
4. Ignoring Market Positioning
Setting prices purely on cost can disconnect your offering from perceived value.
Solution: Balance cost-based pricing with value-based insights. Surplus Pricing helps integrate market benchmarking with internal pricing rules to determine an appropriate sale price.
How Surplus Pricing Automates Markup for Better Profitability
Surplus Pricing is designed specifically for professional service firms that need to manage complex pricing with confidence and precision. The platform lets you:
- Embed markup rules into pricing templates for different service offerings
- Apply markup consistently across fixed fees, hourly rates, and retainers
- Adjust markup by client, sector, or team for strategic pricing decisions
- Run scenario modelling to understand how markup affects profitability
- Integrate with accounting systems for seamless quote-to-invoice workflows
You can use markup more effectively by leveraging Surplus Pricing’s structured frameworks and tools. This helps firms arrive at a selling price that balances cost recovery with profitability goals. Whether you’re calculating the average selling price or defining service-level pricing for a new client, the platform ensures your markup approach directly supports profit goals and pricing consistency.
Conclusion
Mastering how to calculate selling price using markup gives your firm more than just cost recovery—it creates a pricing foundation that supports long-term profitability. Whether you’re quoting a fixed-fee project, structuring a retainer, or managing hourly work, applying markup consistently is key to protecting margins and pricing with confidence.
Surplus Pricing helps service firms do exactly that—by automating markup rules, simplifying pricing templates, and enabling more strategic pricing decisions, including the ability to evolve toward value-based pricing where appropriate.
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