Markup vs margin

The two formulas

Markup equals profit divided by cost. Margin equals profit divided by price. To get a price from a markup, multiply cost by one plus the markup: a $100 cost with a 30 percent markup sells at $130. To get a price from a target margin, divide cost by one minus the margin: a $100 cost with a 30 percent margin target sells at about $142.86. To convert, margin equals markup divided by one plus markup, and markup equals margin divided by one minus margin. So a 25 percent markup is a 20 percent margin, and a 40 percent margin needs a 66.7 percent markup. The Australian Government business site describes cost plus pricing as calculating total cost and then adding a mark up or margin, which is exactly where the choice of base matters.

Why the difference matters

Most business targets are set as margins, because accountants and benchmarks report gross margin on sales. Most quoting, though, starts from cost and adds a markup. A business that wants a 30 percent gross margin and adds 30 percent to its costs ends up with a 23.1 percent margin, nearly 7 points short, on every job. Over a year of sales that gap can be the whole profit. The fix is simple: decide which number your targets use and convert once, then quote with the converted figure.

When to use each

Use markup when building a price from costs, item by item, because it maps directly from cost to price. Use margin when reviewing results, comparing products, or checking a quote against your target, because it tells you how much of each dollar of sales you keep before overheads. Many trades businesses use different markups for materials and labour, then check the blended margin of the whole quote against their target before sending it.

Common mistakes

The classic error is treating the two as interchangeable. Others include calculating margin on a price that includes GST, which inflates it; forgetting to include all costs, so both numbers look better than reality; and discounting a quote by a percentage without checking what it does to margin. A 10 percent discount on a 20 percent margin quote halves the profit on that job, which is worth knowing before agreeing to one.

Where it shows up in the product

The pricing table in the proposals module works in prices: each item has a unit price, an optional tax rate and discount, and the table totals the amounts. Markup and margin are calculations you make before entering prices, for example with your own cost sheet. Price hints in the brief are authoritative, so the generator writes each item at exactly the price you give, and the AI chat can apply a discount or update an item, each shown as a preview before it lands.

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