Definition
Markup is the amount added to cost to get price, expressed as a percentage of cost (e.g., 25% markup on $100 cost = $125 price). Margin (gross margin) is profit as a percentage of price (e.g., $25 profit on $125 price = 20% margin). The same dollar profit can be described as either a markup on cost or a margin on price—the percentages differ.
Why It Matters
Mixing up markup and margin leads to under-pricing. A 20% markup is not the same as 20% margin. When you say “I want 20% profit,” you usually mean margin; applying 20% as markup gives you less margin. Bids and estimates should be clear which percentage is used and applied to which base.
Field Example
Cost $80; you want 25% margin. Price = $80 ÷ (1 − 0.25) = $106.67. If you had applied 25% markup instead: $80 × 1.25 = $100; margin would be $20/$100 = 20%, not 25%. Contractors who “add 25%” often mean margin; the formula must match.
Calculation / Formula (if applicable)
Price from margin: Price = Cost ÷ (1 − Margin%). Price from markup: Price = Cost × (1 + Markup%). Margin from price and cost: Margin% = (Price − Cost) ÷ Price. Markup% = (Price − Cost) ÷ Cost.
Software Application
In estimating and pricing, let the user choose “markup on cost” or “margin on price” and show the other. Apply the chosen method consistently. Display both markup and margin on quotes and job reports so users see the relationship. Avoid defaulting to markup when users think in margin.
Tooltip Version
Markup is profit as a percent of cost; margin is profit as a percent of price. They’re different—use margin when you want “profit as a percent of revenue.”
Related Objects
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