Ask ten tradespeople what margin they work on and you’ll get ten answers, half of which are actually markups. It sounds like a word game. It isn’t. Mixing the two up is one of the quietest ways a sole trader ends up working hard for less than they think.
The difference in one line
Markup is your profit as a percentage of your cost. Margin is your profit as a percentage of the price. Same profit, different bottom number, so a 25% markup is only a 20% margin.
Example: a job costs you £400 and you charge £500. Profit is £100.
- Markup: £100 ÷ £400 = 25%
- Margin: £100 ÷ £500 = 20%
Why it costs you money
Say you decide you want a 30% margin on your jobs, which sounds sensible. Then you price a job by adding 30% to your costs. That’s a markup, and it gives you a smaller margin than you aimed for.
Here’s a bathroom job. Your costs are £2,400: £1,400 of materials, two and a half days of your time valued at £700, £150 for skip and waste, and £150 for a plasterer.
| Add 30% to cost (markup) | Price for a true 30% margin | |
|---|---|---|
| Costs | £2,400.00 | £2,400.00 |
| Price (ex VAT) | £3,120.00 | £3,428.57 |
| Profit | £720.00 | £1,028.57 |
| Actual margin | 23.1% | 30.0% |
The gap is £308.57 on one job. If you do 25 jobs like that a year, it’s over £7,700 you meant to earn and didn’t. Nothing went wrong on site. It was lost in the spreadsheet.
The formulas you actually need
| To work out… | Use |
|---|---|
| Markup % | (Price − Cost) ÷ Cost × 100 |
| Margin % | (Price − Cost) ÷ Price × 100 |
| Price for a target markup | Cost × (1 + markup) |
| Price for a target margin | Cost ÷ (1 − margin) |
| Markup to margin | Markup ÷ (1 + markup) |
| Margin to markup | Margin ÷ (1 − margin) |
The one worth remembering: to hit a margin, divide your cost by (1 minus the margin). For a 30% margin, divide by 0.7. For 25%, divide by 0.75. For 40%, divide by 0.6.
Conversion table
| Markup | Gives a margin of | Target margin | Needs a markup of | |
|---|---|---|---|---|
| 10% | 9.1% | 10% | 11.1% | |
| 15% | 13.0% | 15% | 17.6% | |
| 20% | 16.7% | 20% | 25.0% | |
| 25% | 20.0% | 25% | 33.3% | |
| 30% | 23.1% | 30% | 42.9% | |
| 40% | 28.6% | 35% | 53.8% | |
| 50% | 33.3% | 40% | 66.7% | |
| 100% | 50.0% | 50% | 100.0% |
Get the costs right first
Margin maths only works if the cost figure is honest. These are the things that get left out most often:
- Your own time. Put a value on every hour, including travel and the trip to the merchant. If you’re not costing your time, your “profit” is really your wages.
- Overheads. Van, insurance, phone, tools, software, accountant. Add up a year’s worth, divide by the days you actually bill, and add that daily figure to every job. £9,000 a year over 180 billable days is £50 a day.
- Waste and small stuff. Fixings, sealant, offcuts, disposal.
- Subcontractors. Including the day the plasterer couldn’t come and you lost half a day waiting.
- Quoting time. The site visit and the evening writing the quote are real costs, even on jobs you don’t win.
What about VAT?
Work out cost, price and margin excluding VAT. If you’re VAT-registered, add VAT on top at the end. VAT isn’t your money, so it shouldn’t be in your margin.
Which one should you use?
Use both, but for different jobs, and always say which you mean.
- Margin for targets. It tells you how much of every pound a customer pays you keep. It also makes it easy to compare jobs of different sizes.
- Markup for materials. Many trades add a markup to materials to cover the time spent sourcing, collecting and standing behind them. There’s no single right figure. Just make sure you know what margin it produces.
Try it on a real job
The free quote margin calculator takes your price, labour, materials, other costs and overhead, and shows the margin and markup side by side. As a check, a job priced at £800 with £200 labour, £180 materials, £45 other costs and £50 overhead leaves £325 profit: a 40.6% margin, or a 68.4% markup.
Want every quote to do this for you?
Smart Quotes is a reusable quote template built around your real labour rate, materials markup and overheads, in the tool you already use. The margin shows on every quote before you send it. £149 fixed price, agreed in writing first.