Markup calculator with a parts markup table

Markup is the amount you add on top of what something costs you, written as a share of that cost. If a part costs you $80 and you sell it for $120, you added $40. The markup is $40 ÷ $80 = 50%.

The formula is short:

• Markup = (price − cost) ÷ cost
• Price from a markup = cost × (1 + markup)
• Multiplier = price ÷ cost, so a 50% markup is a 1.5× multiplier

Most supply houses, flat-rate books and parts systems talk in multipliers. A 2× multiplier is a 100% markup. A 1.35× multiplier is a 35% markup. The calculator shows all three numbers so you can match whatever your price book uses.

Markup is easy to apply at the counter, which is why trades use it. The trouble starts when the markup gets treated as if it were the margin.

Both numbers start from the same profit. Markup divides it by the cost. Margin divides it by the price. Because the price is always bigger than the cost, the margin is always the smaller number.

To switch between them:

• margin = markup ÷ (1 + markup). A 50% markup is 0.5 ÷ 1.5 = 33.3%.
• markup = margin ÷ (1 − margin). A 40% margin is 0.4 ÷ 0.6 = 66.7%.

Here is where it costs money. Say your accountant tells you the business needs a 40% gross margin to cover overhead and leave a profit. If you add 40% to cost, you get a 28.6% margin. On $420,000 of sales, the gap between a 28.6% margin and a 40% margin is about $48,000 a year in gross profit you thought you had.

Divide the cost by one minus the margin. For a 40% margin on a $60 part: $60 ÷ (1 − 0.40) = $60 ÷ 0.60 = $100. The profit is $40, and $40 is 40% of $100.

The same rule works for a whole job. A job with $2,400 of materials and labor cost, priced for a 35% margin, is $2,400 ÷ 0.65 = $3,692. Rounded for the quote, call it $3,700.

The calculator's "price from a margin" mode does this division. It caps the margin at 95%, because a margin of 100% would mean the cost was zero.

A few points that save trouble:

• Pick one number for the whole business. If the office thinks in margin and the field thinks in markup, write the matching pair on the price book so nobody mixes them up.
• Mark up labor separately. Labor is priced from a billable hourly rate, not a markup on wages. The labor rate calculator works that rate out from wages, burden, unbilled time and overhead.
• Check the job, not just the parts. A job can have healthy parts markup and still lose money if the hours run long. The profit margin calculator checks the margin on the whole job after overhead.

A flat markup treats a $3 fitting and a $1,300 compressor the same way. That fails at both ends. At 1.5×, the fitting earns you $1.50, which does not pay for the time to find it on the truck, log it and restock it. The compressor earns $650, which can push the job price past what the customer will accept or what the competition quotes.

A sliding-scale matrix fixes both. Each cost tier gets its own multiplier. Small parts get a high multiplier, large parts get a low one. The dollars of profit still go up as the part gets more expensive, but the share goes down.

The calculator's matrix uses eight cost tiers. You set the multiplier for the cheapest tier and for the most expensive tier, and it steps evenly between them. With 3.0× on parts under $10 and 1.35× on parts $1,000 and up, each tier drops by (3.0 − 1.35) ÷ 7 = 0.236:

Those two ends are only an example. There is no single right matrix. Yours depends on your overhead, how much of your work is service versus install, and what parts you carry. Set the ends, look at the margin column, and ask whether each tier still covers its share of overhead.

Work backward from your own numbers instead of borrowing a number from someone else's business.

1. Find your overhead share. Last year's overhead ÷ last year's sales. If overhead was $96,000 on $480,000 of sales, overhead is 20% of every dollar.
2. Pick the profit you want to keep. Say 10% of sales.
3. Add them for the least gross margin you can live with. 20% + 10% = 30%.
4. Turn that margin into a markup. 0.30 ÷ 0.70 = 42.9%, a 1.43× multiplier.

That is the floor for work where the cost is mostly materials. For small parts, go well above it, because handling and stocking eat a bigger share of a small sale. For equipment, you may sit nearer the floor, and make the rest on the labor.

Recheck it once a year, and whenever a big overhead cost changes: a new truck, a second office hire, a jump in insurance.

Markup mistakes that cost contractors money

• Treating markup as margin. Adding 30% to cost and calling it a 30% margin. The real margin is 23%.
• Marking up the wrong cost. Marking up the list price instead of what you paid, or forgetting freight, fuel surcharges and tax on parts you bought.
• One flat markup on everything. Small parts earn too little to cover handling; big parts get priced out of reach.
• Never updating the price book. Supplier prices move. If the cost in your price book is a year old, the markup you think you have is not the one you get.
• Discounting the price, not the markup. A 10% discount on a 40% margin job cuts the margin to 33%, not 30%. Check the margin after any discount with the "markup and margin from a price" mode.
• Forgetting returns and waste. Parts that get returned, damaged or left over are a cost. A slightly higher markup on materials covers them.

Not every line on a job should carry the same markup. Each kind of cost has its own job to do in the price.

Writing down which rule applies to which line keeps estimates consistent between people in the office and in the field. It also means a price can be explained if a customer asks.

Once the matrix is set, the hard part is using it every time. In Koira, each line on an estimate keeps its cost next to its price, so the markup and margin on each line and on the whole job are visible before you send it. Save a price from this calculator straight into a free estimate with the button above. See pricing for the plans.