Markup vs Margin: What's the Difference?

Markup is the percentage added to a cost to set a selling price. Margin is the percentage of the selling price left after that cost. They measure the same cash difference, but against different starting figures.

For example, an item costs £100 and sells for £125, excluding VAT. The £25 difference represents 25% markup but only 20% margin.

Understanding the distinction matters when pricing products, services or building work. If you aim for a 25% margin but add 25% to your costs instead, you will charge less than your target requires.

Markup vs margin at a glance

The £25 difference does not change. Only the figure used to calculate the percentage changes.

One important qualification: the meaning of the margin depends on which costs you deduct. If the calculation includes only the direct cost of supplying an item or completing a job, it may represent gross margin. If it includes an allowance for wider business overheads, it describes a return after those allocated costs instead. Neither figure automatically tells you your final net profit.

How to calculate markup

Markup starts with cost. Subtract that cost from the selling price, divide by the cost and multiply by 100.

Markup (%) = (Selling price − Cost) ÷ Cost × 100

Using the £100 item sold for £125:

(£125 − £100) ÷ £100 × 100 = 25% markup

If you already know the markup you want, use it to calculate the price:

Selling price = Cost × (1 + Markup as a decimal)

For example, a 30% markup on a £200 cost is:

£200 × 1.30 = £260

That produces a £60 uplift. Whether £60 is enough to cover the remaining costs of the sale or job is a separate question.

How to calculate profit margin

Margin uses the selling price rather than the cost as the denominator.

Margin (%) = (Selling price − Cost) ÷ Selling price × 100

Using the same £100 cost and £125 price:

(£125 − £100) ÷ £125 × 100 = 20% margin

You can also work backwards from a target margin to find the selling price you need:

Selling price = Cost ÷ (1 − Target margin as a decimal)

To achieve a 30% margin on a £200 cost:

£200 ÷ 0.70 = £285.71, rounded to the nearest penny.

Compare that with the £260 selling price produced by a 30% markup. The difference is £25.71. Using markup when you meant margin could leave that much out of the price, even though the job costs are unchanged.

The selling-price formula assumes positive costs and a target margin below 100%. Work in decimals when calculating: 30% becomes 0.30.

Markup-to-margin conversion table

These common conversions are useful when checking an estimate or working from a target percentage.

Percentages are rounded to two decimal places where needed. These are mathematical equivalents, not recommendations for what a business should charge.

How to convert markup into margin

Margin = Markup ÷ (1 + Markup), with markup expressed as a decimal.

For a 25% markup: 0.25 ÷ 1.25 = 0.20, or 20% margin.

How to convert margin into markup

Markup = Margin ÷ (1 − Margin), with margin expressed as a decimal.

For a 25% target margin: 0.25 ÷ 0.75 = 0.3333…, or 33⅓% markup.

A margin target therefore needs a higher numerical markup when both calculations use the same cost base and the sale is profitable.

What costs should you include?

A percentage is only as useful as the costs behind it. This is especially important for tradespeople, because the cost of a job usually extends beyond the materials purchased.

Direct job costs

These are costs linked to carrying out the work. Depending on the job, they may include:

• Materials, delivery and reasonable wastage allowances
• Site labour, including a sensible internal allowance for your own working time
• Subcontractors
• Plant or access equipment hire
• Waste removal and other job-specific expenses

Start with an accurate scope and quantities. Our guide to pricing a building job covers that process in more detail. A perfectly calculated markup will not recover the cost of work you forgot to include.

Overheads and profit

Insurance, vehicles, tools, software, administration and time spent quoting all cost money, but may not belong to one particular job. A business needs a way to recover them through its prices.

For internal pricing, you might allocate an amount of overhead to each job based on expected productive hours or another consistent method. If those overheads are already built into your labour charge-out rate, do not add them again without checking for double-counting.

For sole traders, our guide to setting your labour charge-out rate explains how your ideal take-home pay, estimated personal taxes, annual running costs and billable days feed into the price you charge for your own time.

Gross profit is normally sales revenue less the costs classified as cost of sales. Net profit accounts for further relevant expenses across the business. Exact accounting classifications can vary, so an estimated surplus on one job should not automatically be called net profit.

For sole traders, an allowance for your own working time is useful when setting prices, even though drawings are not treated in the accounts in the same way as an employee's wages. HMRC explains that money taken from the business for personal use is not an allowable business expense.

Worked example: markup and margin on a UK building job

Suppose you are pricing a small building job. The following figures are illustrative, not industry averages, and all prices are before VAT.

Option 1: Add 25% markup

Markup amount = £2,500 × 0.25 = £625

Selling price = £2,500 + £625 = £3,125

The price includes an allowance for £300 of overheads, leaving an estimated £625 surplus after the listed costs.

Margin after allocated costs = £625 ÷ £3,125 × 100 = 20%

It is worth separating this from gross margin. Before deducting the £300 allocation for business overheads, the job has £925 remaining above its £2,200 direct costs:

Gross profit for this simplified example = £3,125 − £2,200 = £925

Gross margin = £925 ÷ £3,125 × 100 = 29.6%

The figures are not contradictory. One calculation is before the allocated overheads; the other is after them. Actual profitability can change when the job is complete.

Option 2: Aim for a 25% margin after allocated costs

A 25% margin on the same £2,500 cost base needs a different selling price:

Selling price = £2,500 ÷ 0.75 = approximately £3,333.33

That leaves approximately £833.33 above the listed costs, rather than £625. The required markup on the cost base is 33⅓%, not 25%.

The difference between the quoted prices is £208.33. That is why getting the terminology right matters before sending a customer a price.

Applying markup to materials and labour

Markup can be applied to individual items or to an overall cost base, but the method needs to be consistent.

For example, applying 25% markup to £1,000 of materials produces a material selling price of £1,250. The £250 uplift is a 20% margin on that line before any additional expenses assigned to it. Buying, collecting, storing and managing materials may all involve costs that need accounting for somewhere in your pricing.

The same principle applies to labour. A £900 labour cost marked up by 25% gives a selling price of £1,125. But if your existing charge-out rates already cover overheads and a return, simply adding another percentage may count some allowances twice.

You do not need to apply the same markup to every line item. What matters is that the overall selling price recovers the costs you have included and delivers the return you intend. Do not calculate the job's overall margin by taking a simple average of each line's margin: larger items carry more weight than smaller ones.

For a worked example applying markup across materials, labour and other job costs, see our guide to pricing a patio job.

How discounts affect your margin

A discount comes off the selling price, not automatically off your costs. It can therefore reduce the margin more sharply than expected.

Return to the £3,125 quote with a £2,500 cost base. If you offer a 10% discount:

• Discounted selling price: £3,125 × 0.90 = £2,812.50
• Amount remaining after included costs: £2,812.50 − £2,500 = £312.50
• Margin after allocated costs: £312.50 ÷ £2,812.50 × 100 = 11.11%

A 10% reduction in the price has taken the estimated margin from 20% to 11.11%. Check that calculation before agreeing a discount, and consider whether any genuine reduction in scope changes the underlying costs.

What about VAT?

For a consistent markup or margin calculation, use comparable cost and selling-price figures.

If your business is VAT-registered and entitled to reclaim the input VAT on a purchase, generally exclude that recoverable VAT from its cost. If VAT is not recoverable, it may form part of your cost. Compare those figures against sales revenue excluding output VAT; VAT collected for HMRC is not profit.

Most building work on existing houses and flats is standard-rated at 20%, but some qualifying work may be reduced-rated or zero-rated. Check the correct treatment rather than assuming every building job uses the same rate. HMRC explains the exceptions in its VAT for builders guidance and the rules for input VAT in VAT Notice 700.

The worked example above excludes VAT so the two pricing approaches can be compared directly.

From your calculation to a customer quote

Once you have checked the job's costs, markup and margin, make sure the quotation clearly describes what the customer is buying. Quantities, inclusions, exclusions and the correct VAT treatment matter as much as the final total. See our guide to writing a professional building quote for the customer-facing details.

Quote Forge is designed to help tradespeople turn their prices into itemised quotations. It supports unit costs and line-item markup, saved quote items and branded PDF quotations. You still choose the pricing assumptions and remain responsible for checking them; the software is not a substitute for job costing or accounting.

To see whether it suits your quoting process, explore Quote Forge's features and pricing.

Frequently asked questions

Is 25% markup the same as 25% margin?

No. A 25% markup produces a 20% margin when the calculations use the same costs. A 25% margin requires approximately 33⅓% markup.

Is 100% markup the same as 100% profit?

No. A 100% markup doubles the cost to arrive at the selling price. The resulting margin is 50% before any other costs not already included.

Can a business have a negative margin?

Yes. If the selling price is below the costs used in the calculation, the amount remaining is negative. That signals a loss against those costs, although the final business result depends on the full accounts.

What is a good markup for a building job?

There is no universal percentage. It depends on direct costs, overhead recovery, risk, the value of the work and the price your customers will accept. Work from your own figures rather than treating a percentage from another business as a rule.

The key point

Use markup to build a price from costs; use margin to check how much of that price remains after those costs. Before you quote, make sure you know which expenses are included in the calculation. A correct formula cannot fix a missing cost.