The formulas
- Gross profit = price − direct cost
- Markup % = gross profit ÷ cost × 100
- Margin % = gross profit ÷ price × 100
- Price for a target margin = cost ÷ (1 − margin)
- Price for a target markup = cost × (1 + markup)
- Markup → margin: margin = markup ÷ (100 + markup)
- Margin → markup: markup = margin ÷ (100 − margin)
Why it matters on a quote
Say you want a 40% margin on a job that costs you $600. If you add 40% to cost you quote $840. Your profit is $240, which is only 28.6% of the price. To actually keep 40% of the price you need to quote $1,000. On a year of jobs, that gap is the difference between a business that covers its overhead and one that doesn't.
Conversion table
| Gross margin | Markup needed | Price on $1,000 of cost |
|---|---|---|
| 10% | 11.1% | $1111.11 |
| 15% | 17.6% | $1176.47 |
| 20% | 25% | $1250.00 |
| 25% | 33.3% | $1333.33 |
| 30% | 42.9% | $1428.57 |
| 33.3% | 49.9% | $1499.25 |
| 35% | 53.8% | $1538.46 |
| 40% | 66.7% | $1666.67 |
| 45% | 81.8% | $1818.18 |
| 50% | 100% | $2000.00 |
| 60% | 150% | $2500.00 |
Which one should you use?
Either works if you're consistent. Markup is convenient on individual materials ("I add 20% to materials"). Margin is easier for judging the whole business, because it tells you what share of every dollar you bill is left to pay overhead and yourself. Try both in the profit margin calculator.
Common questions
What is the difference between markup and margin?
Both use the same dollar profit. Markup divides that profit by your cost; margin divides it by the selling price. $600 cost sold at $1,000 is a 66.7% markup and a 40% margin.
How do I convert markup to margin?
Margin = markup ÷ (100 + markup). A 50% markup equals a 33.3% margin. A 100% markup (doubling your cost) equals a 50% margin.
How do I convert margin to markup?
Markup = margin ÷ (100 − margin). A 40% margin needs a 66.7% markup. A 50% margin needs a 100% markup.
Why can't margin be 100%?
Margin is a share of the price. 100% margin would mean the job cost nothing. Markup has no upper limit because it is measured against cost.