What does "markup" refer to in pricing strategy?

In pricing strategy, "markup" specifically refers to the amount added to the cost price of a product in order to cover expenses and generate profit. This figure is crucial for businesses because it determines how much a product will be sold for above its cost price, ensuring that all associated costs, such as manufacturing, overhead, and desired profit are accounted for. By calculating the markup correctly, businesses can set prices that not only cover their costs but also achieve their financial goals.

Understanding markup is essential because it provides insight into how businesses sustain operations and remain profitable. It also helps in strategic decision-making, such as setting competitive prices while ensuring viability in the marketplace. The concept of markup contrasts with other pricing elements like discounts or final sale prices, which focus on different aspects of the pricing process.