Markup vs margin
Both measure the same profit. Markup divides it by your cost, margin divides it by the price the customer pays.
The two formulas
Same profit, divided by a different number.
Profit is the same number in both: price minus cost. When a job makes money, the price is larger than the cost, so the margin is always the smaller percentage.
A contractor example
A bathroom tile job.
- Materials
- $1,800
- Labor
- $1,200
- Total cost
- $3,000
- Price
- $4,000
- Profit
- $1,000
$1,000 ÷ $3,000
$1,000 ÷ $4,000
Why the difference costs money
You want to keep 25% of the $3,000 job as profit.
- Price
- $3,750
- Profit
- $750
- Margin
- 20%
- Price
- $4,000
- Profit
- $1,000
- Margin
- 25%
The 25% markup leaves $250 on the table. To keep a 25% margin, mark up by 33.3%.
Converting between them
Two formulas and the common values.
| Markup | Margin |
|---|---|
| 10% | 9.1% |
| 20% | 16.7% |
| 25% | 20% |
| 33.3% | 25% |
| 50% | 33.3% |
| 66.7% | 40% |
| 100% | 50% |
Which one to use
Each answers a different question.
When you build a price from your costs. It is the number you multiply by.
When you check whether a job, or your whole year, made enough money. It is the share of every dollar collected that you kept.
Overhead comes out of the margin. Truck, insurance, phone, tools and the hours you spend quoting are paid from it. If overhead runs 15% of sales and your margin is 20%, 5% is left as profit.
Run your own numbersType a cost and a margin. The calculator sets the markup and shows the price.
Open the calculator