Markup vs margin: the number most tradespeople get wrong

Markup and margin get used as if they mean the same thing. They don’t, and the gap between them is quietly costing tradespeople money. If you add 20 percent to your costs thinking you’re keeping 20 percent profit, you’re not. You’re keeping less, and across a busy year that difference is real money left on the table.

The difference, in plain numbers

Markup is what you add to your cost. Margin is what you keep out of the final price.

Take a job that costs you £100 in materials and time. Add a 20 percent markup and you charge £120. But your profit, that £20, is only 16.7 percent of the £120 the customer pays. So a 20 percent markup is really a 16.7 percent margin. Same job, two different numbers, and margin is the one that ends up in your pocket.

Why it trips people up

Most people price on markup but think in margin. You add your usual 20 percent, tell yourself you’re on 20 percent profit, and quietly you’re running thinner than you planned. On a single £120 job the gap is small. Across a year of jobs it’s the difference between a comfortable business and one that’s always a bit short.

How to price for the margin you actually want

If you want to keep a set margin, don’t add it as a markup. Work backwards from it instead. Divide your fully-costed price by one minus the margin you want, written as a decimal.

Say your fully-costed job is £100 and you want a 25 percent margin. Divide £100 by 0.75 and you get £133. Charge £133 and you keep £33, a true 25 percent of the price. If you’d just added 25 percent as a markup you’d have charged £125 and kept only 20 percent.

A quick reference

To keep a given margin, here’s the markup you actually need to add on top of your cost:

• For a 15 percent margin, add about 18 percent
• For a 20 percent margin, add 25 percent
• For a 25 percent margin, add about 33 percent
• For a 30 percent margin, add about 43 percent

Notice the markup is always bigger than the margin. That gap is exactly what catches people out.

A real example, not just round numbers

Round numbers make the point, but here’s a real one. A job costs you £640: £360 in materials with handling, £250 in labour, and £30 as its share of your overheads. You want to keep a 25 percent margin. Add 25 percent as a markup and you’d charge £800 and keep £160, which is only 20 percent. Work back instead: divide £640 by 0.75 and you charge £853, keeping £213, a true 25 percent. That’s £53 more on one job for the same work, purely from doing the maths the right way. Across a hundred jobs a year, that’s real money you were leaving behind.

Why it matters more as you grow

When it’s just you, a thin margin means a lighter month. Once you’re paying a mate, running two vans, or carrying stock, a thin margin means you can’t cover the wages when a couple of jobs slip. Margin is what absorbs the bad weeks, the write-offs, and the customer who pays late. The bigger the operation, the more every point of it matters, and the more a markup-margin mix-up quietly hurts. Getting it right while you’re small builds the habit before it becomes expensive to get wrong.

What margin should you aim for?

There’s no single right number, and it varies by trade and by how you work, but a rough guide helps. Many trades aim to keep 15 to 30 percent once everything is costed in. Materials-heavy work often runs leaner on the materials and makes its margin on labour. Labour-only work, like inspections or small repairs, can carry a higher margin because there’s little material cost to dilute it. Pick a floor you won’t drop below, and treat any job priced under it as one to walk away from rather than win.

Do it once, on purpose

You don’t need to run this maths on every quote. Decide the margin you want to keep, work out the markup that gets you there once, and build it into your prices and your saved items. Then every quote is already priced to keep what you planned, without you thinking about it.

Markup and margin aren’t the same, and the one that pays you is margin. Price by working back from the margin you want, not by adding a markup and hoping.

This is one piece of pricing a job properly. Here’s the full picture: materials, labour, overheads and profit. Snapquo keeps your priced items in a saved list, so every quote is built to the margin you set. See how it works, or start free.