True Rate Markup vs margin
Markup vs margin, with a calculator
Markup is what you add on top of your cost. Margin is the share of the price you keep. They're the same dollars measured against different numbers, so a 25% markup is a 20% margin, not 25%. Type any one number below and the others follow.
What it bills
The same $1,000, three ways
- 20% markup. $1,000 of materials marked up 20% bills $1,200. Profit is $200, which is a 16.7% margin, not 20%.
- 25% markup. To actually make a 20% margin you need a 25% markup: $1,000 × 1.25 = $1,250, profit $250, and $250 is 20% of $1,250.
- 30% markup. A 30% markup on a $1,000 cost bills $1,300 for $300 profit, a 23% margin.
The mistake that costs money is setting a 20% profit goal and then adding 20% to cost. You end up at a 16.7% margin on every job, and nothing on the invoice looks wrong.
Markup to margin chart
| If you add | You keep |
|---|---|
| 10% markup | 9.1% margin |
| 15% markup | 13% margin |
| 20% markup | 16.7% margin |
| 25% markup | 20% margin |
| 30% markup | 23.1% margin |
| 35% markup | 25.9% margin |
| 40% markup | 28.6% margin |
| 50% markup | 33.3% margin |
| 60% markup | 37.5% margin |
| 75% markup | 42.9% margin |
| 100% markup | 50% margin |
| To keep | Add |
|---|---|
| 10% margin | 11.1% markup |
| 15% margin | 17.6% markup |
| 20% margin | 25% markup |
| 25% margin | 33.3% markup |
| 30% margin | 42.9% markup |
| 35% margin | 53.8% markup |
| 40% margin | 66.7% markup |
| 50% margin | 100% markup |
Rounded to one decimal. A 100% markup (doubling your cost) is a 50% margin. No markup gets you to a 100% margin.
The markups in the True Rate kit
The kit's starter markups by line type, and the margin each one works out to. They're starting points you edit, not industry data.
| Line | Markup | Margin | Why |
|---|---|---|---|
| Materials, standard | 25% markup | 20% margin | Covers the shopping, loading, returns, and the risk of the wrong part. Used by the Price Book and Price This Job. |
| Subcontractors | 15% markup | 13% margin | You find them, schedule them, and own their callbacks. Used by Price This Job. |
| Materials, small orders under $100 | 35% markup | 25.9% margin | A $12 part takes as long to buy as a $400 one. |
| Materials, big-ticket / special order | 15% markup | 13% margin | Vanities, doors, flooring. A lower %, but still real dollars. |
| Equipment rental | 20% markup | 16.7% margin | Pickup, return, and the fuel to get it. |
| Dump / disposal fees | 20% markup | 16.7% margin | The dump run costs time and fuel on top of the gate fee. |
| Customer-supplied items | 0% markup | 0% margin | Labor only. Put in writing that you don't warranty parts they bought. |
Every job in the 80-job price list marks its supplies up 25%, so each one keeps 20% of what it bills for supplies.
Your hourly rate is a margin
The free calculator works out break-even first: overhead and your pay, divided by the hours you can bill. In the kit's worked example that's $70.52 an hour. To keep 20% of every dollar, it divides by (1 − 20%) and gets $88.15.
Adding 20% to break-even instead gives $84.62, a 16.7% margin. That's $3.53 an hour less, or about $4,727 a year across the example's 1,339 billable hours.
Common questions
Is a 25% markup the same as a 25% margin?
No. A 25% markup on a $1,000 cost bills $1,250. The $250 profit is 20% of the $1,250 price, so the margin is 20%. Markup is measured against your cost and margin against the price, so the margin is always the smaller number.
What markup do I need for a 20% margin?
25%. Divide the margin by what's left of the price: 20 ÷ 80 = 25%. The same $1,000 cost marked up 25% bills $1,250, and $250 is 20% of $1,250.
Is it wrong to mark up materials?
No. The markup pays for the shopping, the loading, the returns and the risk of the wrong part. The True Rate kit starts materials at a 25% markup and small orders under $100 higher, because a cheap part takes as long to buy as an expensive one. If the customer buys the part, it's labor only.
Should I quote with markup or margin?
Either works, as long as you know which one you mean. Customers never see either number. Set your profit goal as a margin (the share of the price you keep), then use the matching markup to build prices from your cost.
Is my hourly rate a markup or a margin?
In True Rate's calculator it's a margin. Break-even is divided by (1 − margin): $70.52 ÷ 0.8 = $88.15 for a 20% margin. Marking break-even up 20% instead gives $84.62, which is only a 16.7% margin.
Markup and margin, already set up
The True Rate kit has a markup and margin converter, the starter markups above, and an 80-job price book that prices from your own rate. $39 once, for Google Sheets or Excel.