What does 'markup' mean in pricing strategy?

In pricing strategy, 'markup' refers specifically to the amount added to the cost price of goods to cover overhead and profit. This concept is essential for businesses as it determines how much they need to charge for their products to ensure that operating costs are met and that they make a profit.

When a business calculates markup, it typically starts with the cost of producing or purchasing the product. The markup is then added to this cost to set a selling price. This is important because it allows businesses to maintain their margins while also being competitive in their pricing within the market. Essentially, the amount of markup directly influences the profitability of sales and impacts pricing strategies across various sectors.

Other options focus on different aspects of pricing or costs. For example, operational costs are part of running a business but are not directly related to how markup is defined. The final selling price, while affected by markup, encompasses more than just the cost and markup; it may include factors such as perceived value and market demand. Discounts for bulk purchasing relate to pricing strategies aimed at increasing sales volume rather than defining how markup is calculated.