Markup vs Margin: Calculate Profit on a Quote

Confusing markup with margin is one of the most common pricing mistakes. Adding 30% to your costs doesn't give you a 30% profit margin. On a large job, the difference can be significant.

The two formulas

Markup is profit as a percentage of cost.

Markup = (Price − Cost) ÷ Cost

Margin is profit as a percentage of the selling price.

Margin = (Price − Cost) ÷ Price

An example

A job costs you 10,000 and you charge 13,000. Your profit is 3,000.

• Markup: 3,000 ÷ 10,000 = 30%
• Margin: 3,000 ÷ 13,000 = about 23%

The same profit gives you two very different percentages.

How to hit a target margin

If you want a specific margin, don't simply add that percentage to the cost. Use this instead:

Price = Cost ÷ (1 − Target margin)

For a 30% margin on a cost of 10,000:

10,000 ÷ 0.70 = about 14,286

Adding 30% would give you only 13,000, and a margin of about 23%.

Handy conversions

• 25% markup is a 20% margin.
• 50% markup is about a 33% margin.
• 100% markup is a 50% margin.

Watch your discounts

Discounts come straight out of profit. On the example above, a 10% discount on the 13,000 price removes 1,300, which is over 40% of your 3,000 profit. Before offering one, work out what is left. The guide on discounts explains safer alternatives.

Count all your costs

A margin is only accurate when your cost is. Include labour, delivery, wastage and subcontractors, not just materials.

Keep reading