What does mark-up mean in financial terms?

Mark-up refers to the amount added to the cost of a product in order to determine its selling price, specifically expressed as a percentage of the cost. In financial terms, it is calculated by taking the cost of the goods or services and increasing it by a certain percentage to cover expenses and profit. This approach helps businesses ensure that they cover costs while also earning a profit.

For example, if a product costs a manufacturer $50 to produce and they apply a mark-up of 20%, the selling price would be $60. The method reflects a common pricing strategy in businesses where the cost price determines the final price charged to consumers.

This concept is essential for understanding pricing strategies in commercial contracting and financial management. By calculating profits based on a percentage of the costs, businesses can easily adjust pricing to reflect changes in production costs or desired profit margins.