- Markup = profit divided by cost. Margin = profit divided by price. Same profit, different number.
- To hit a margin, divide cost by one minus the margin. A 40% margin on $600 of cost is $600 ÷ 0.6 = $1,000.
- Adding a 40% markup to cost gives you only about a 28.6% margin.
The two definitions
- Markup = (price minus cost) ÷ cost
- Margin = (price minus cost) ÷ price
Example: materials cost you $600 and you charge $1,000. Profit is $400. Markup is $400 ÷ $600 = 66.7%. Margin is $400 ÷ $1,000 = 40%. Same job, same profit.
Conversion table
| Markup on cost | Margin on price | Multiply cost by |
|---|---|---|
| 10% | 9.1% | 1.10 |
| 20% | 16.7% | 1.20 |
| 25% | 20% | 1.25 |
| 30% | 23.1% | 1.30 |
| 40% | 28.6% | 1.40 |
| 50% | 33.3% | 1.50 |
| 66.7% | 40% | 1.667 |
| 100% | 50% | 2.00 |
- margin = markup ÷ (1 + markup)
- markup = margin ÷ (1 − margin)
What the mix-up costs
Say you need a 40% gross margin to cover overhead and profit, and you add 40% to cost instead. On a year of jobs with $250,000 of costs, a 40% markup brings in $350,000 of sales and $100,000 of gross profit. Pricing for a true 40% margin brings in $250,000 ÷ 0.6 = $416,667 of sales and $166,667 of gross profit. The gap is about $66,667 a year from one word.
Pricing a job for the margin you want
- Add up the job's costs: labor, materials, subs, permits, disposal.
- Decide the margin you need from your overhead and profit goal. See gross vs net margin.
- Divide the cost by one minus that margin.
Example: $3,000 of job costs at a 35% margin is $3,000 ÷ 0.65 = $4,615. Round to $4,600 or $4,650 for the quote. Our markup calculator does the division and shows both numbers, and the flat-rate price book builder applies your markup across a whole list of tasks.
Published October 31, 2024. This page is general information, not legal or tax advice. Rules change and differ by state and city, so confirm with the agency named before you act.