What does the term "markup" refer to in retail pricing?

In the context of retail pricing, "markup" specifically refers to the difference between the cost of a product and its selling price. This concept is critical for retailers to understand as it helps them determine how much to charge for goods in order to cover expenses and achieve a profit. When a retailer purchases a product at a certain price, they add a markup based on desired profit margins, market conditions, and other factors related to sales strategy.

For instance, if a retailer buys a shirt for $20 and sells it for $30, the markup would be $10, which is the difference between the selling price and the cost. Understanding this difference is essential for effectively pricing merchandise, managing inventory, and ensuring the overall profitability of a retail operation. The focus on this distinction is vital, as it affects how retailers strategize their pricing to remain competitive while still ensuring they meet their financial goals.