Markup pricing is a method that sets price by adding a fixed percentage to the cost of producing or acquiring a unit. If a unit costs $80 and you apply a 25% markup, the price is $100. It is a form of cost-plus pricing, and its appeal is simplicity: every sale is guaranteed to cover cost plus a defined margin, and the logic is easy to defend internally.

One distinction trips up more companies than it should. Markup is a percentage of cost; margin is a percentage of price. That same 25% markup on an $80 unit produces a $100 price, which is only a 20% margin. Teams that set “25% markup” believing they are protecting a 25% margin quietly undercharge across the entire book.

Markup pricing holds up best in environments where per-item value pricing is impractical:

• High-SKU catalogs. Distribution and wholesale, where thousands of items make individual value assessment impossible.
• Pass-through cost structures. Businesses reselling or lightly transforming goods, where cost is the dominant variable.
• Commodity-adjacent categories. Offerings with little differentiation, where the market already prices close to cost.

Where it breaks down is in differentiated B2B and SaaS. Anchoring price to cost ignores what the customer is actually willing to pay, so you undercharge where your value is high and overcharge where it is low. It also bakes your own inefficiencies into the price: high cost produces a high price regardless of whether the market rewards it. And it can’t capture pricing power, because cost has no relationship to the value a buyer perceives. The result is a structural gap between the price you could set and the price you do, which surfaces later as weak price realization.

The practical move is to treat markup as a floor, not a strategy. Use it to ensure no deal sells below a margin threshold, then set the actual price off value and the competitive set rather than off cost. That is the shift from cost-anchored pricing to value-based pricing.

For B2B and PE-backed companies, markup pricing is usually a legacy default inherited from a finance-led or cost-accounting origin. Moving off it is one of the more reliable ways to recover margin, because the value is already there in the offering and only the pricing logic is holding it back.

Still pricing off cost instead of value? Schedule a discovery call with Acustrategy.