Free tool
Markup and margin calculator
They are not the same number, and the difference is where profit goes missing.
Markup is calculated on what something cost you. Margin is calculated on what you sold it for. They describe the same transaction from opposite ends and they never produce the same percentage.
A 30% markup is a 23% margin. To actually make a 30% margin you need a 43% markup. If your supplier talks in markup and your accountant talks in margin, one of those conversations is being misunderstood.
The sums
Markup is profit divided by cost. Buy at $100, sell at $130, the markup is $30 on $100, which is 30%.
Margin is profit divided by the sell price. Same transaction: $30 on $130, which is 23%.
To go from a target margin to the markup you need, divide the margin by one minus the margin. A 30% margin needs 0.3 divided by 0.7, which is 42.9% markup.
The table worth remembering
| Markup on cost | Resulting margin |
|---|---|
| 10% | 9.1% |
| 20% | 16.7% |
| 25% | 20% |
| 30% | 23.1% |
| 50% | 33.3% |
| 66.7% | 40% |
| 100% | 50% |
The gap widens as the numbers grow, which is why the mistake is expensive on the jobs that matter most.
Where it bites in a trade business
Materials markup is the usual place. A business that decides it needs a 25% margin on materials and applies a 25% markup is making 20%, and on a year of material purchases that difference is real money.
It also shows up when a customer asks for a discount. Taking 10% off the price of something sold at a 23% margin does not leave 13% margin, it leaves about 15% of a smaller number, and the profit falls by more than a third.
Markup on materials is not a rort
A markup on parts funds carrying stock, the trip to the supplier, the warranty when the part fails, and the working capital tied up between paying for it and being paid for it. A trade business that passed materials through at cost would be lending you money and running errands for free.
What matters is that the quote makes it visible, one way or the other. The job cost calculator pulls a quote apart into labour and materials so you can see the shape of it.
Common questions
What is the difference between markup and margin?
Markup is profit as a percentage of what it cost you. Margin is profit as a percentage of what you sold it for. Buy at $100 and sell at $130 and that is a 30% markup and a 23% margin. Same transaction, two different numbers.
What markup do I need for a 30% margin?
42.9%. Divide the target margin by one minus the target margin: 0.3 divided by 0.7. Applying a 30% markup when you wanted a 30% margin leaves you with 23%, which is a shortfall of nearly a quarter of the profit you expected.
Is a 50% markup the same as a 50% margin?
No. A 50% markup is a 33.3% margin. To get a 50% margin you need a 100% markup, which is to say doubling the cost. The gap between the two widens as the percentages grow.
What happens to my margin if I give a 10% discount?
It falls by much more than 10%. On something sold at a 23% margin, a 10% discount takes roughly a third to a half of the profit out, because the discount comes entirely off the profit and not off the cost. Work it out before you offer it.
Is marking up materials fair?
It is how a trade business funds carrying stock, the trip to the supplier, the warranty when a part fails, and the money tied up between buying the part and being paid for it. Passing materials through at cost would mean lending you money and running errands for nothing. What matters is that the quote makes it visible.