Margin and markup describe different relationships between price, cost, and profit. Mixing them up can lead to quotes that earn less than expected.
Markup is measured against cost
Markup (%) = (Price − Cost) ÷ Cost × 100. If a job costs $100 and sells for $125, markup is 25%.
Margin is measured against revenue
Margin (%) = (Price − Cost) ÷ Price × 100. That same $125 job has a 20% margin, not 25%.
How to set a price for a target margin
Price = Cost ÷ (1 − target margin as a decimal). For a $100 job and a 25% margin target, the price is $133.33, not $125. The resulting profit is $33.33, which is 25% of revenue.
What should count as cost?
Include the labor, payroll burden, supplies, travel, equipment, and allocated overhead relevant to the calculation. A margin calculated from direct costs only is not the same as a true net profit margin after all business expenses.
See the profit margin guide and our free tools library for more examples.