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.

Convert it

Starts at the $1,000 example below. Type over any number.

Margin = markup ÷ (1 + markup). Markup = margin ÷ (1 − margin).

What it bills

Price$1,250 Cost × (1 + markup).
Profit$250
Margin20%Profit as a share of the price.
Markup25%Profit as a share of your cost.

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

Markup and the margin it gives
If you addYou keep
10% markup9.1% margin
15% markup13% margin
20% markup16.7% margin
25% markup20% margin
30% markup23.1% margin
35% markup25.9% margin
40% markup28.6% margin
50% markup33.3% margin
60% markup37.5% margin
75% markup42.9% margin
100% markup50% margin
Margin goal and the markup it needs
To keepAdd
10% margin11.1% markup
15% margin17.6% markup
20% margin25% markup
25% margin33.3% markup
30% margin42.9% markup
35% margin53.8% markup
40% margin66.7% markup
50% margin100% 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.

True Rate kit starter markups
LineMarkupMarginWhy
Materials, standard25% markup20% marginCovers the shopping, loading, returns, and the risk of the wrong part. Used by the Price Book and Price This Job.
Subcontractors15% markup13% marginYou find them, schedule them, and own their callbacks. Used by Price This Job.
Materials, small orders under $10035% markup25.9% marginA $12 part takes as long to buy as a $400 one.
Materials, big-ticket / special order15% markup13% marginVanities, doors, flooring. A lower %, but still real dollars.
Equipment rental20% markup16.7% marginPickup, return, and the fuel to get it.
Dump / disposal fees20% markup16.7% marginThe dump run costs time and fuel on top of the gate fee.
Customer-supplied items0% markup0% marginLabor 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.