Markup vs Margin: The Maths Every Trade Business Needs

You add 20% to a job, the money comes in, and you assume you've made 20% profit. You haven't. Markup and margin are two different numbers, and confusing them is one of the quietest ways to underprice your work without ever noticing. Get the maths straight once and every quote you write after that earns what you think it does.

What Is Markup?

Markup is how much you add on top of what a job costs you. It's worked out as a percentage of your costs.

If a job costs you £100 in materials and labour and you add 25%, you charge £125. The £25 is your markup.

The formula is simple:

• Selling price = cost × (1 + markup %)
• £100 × 1.25 = £125

Markup is the number most tradespeople carry in their head, because it's the easiest to apply at the van. You know your costs, you slap a percentage on top, you quote. Nothing wrong with that as a starting point — as long as you know what that percentage actually leaves you.

What Is Margin?

Margin is how much profit you keep, expressed as a percentage of the selling price — the figure the customer actually pays you.

Take that same job. You charged £125, it cost you £100, so you kept £25. But £25 as a share of the £125 selling price is 20%, not 25%.

The formula is:

• Margin % = (selling price − cost) ÷ selling price
• (£125 − £100) ÷ £125 = 20%

So a 25% markup gives you a 20% margin. They describe the same £25, but from different angles. Markup looks at it from your cost; margin looks at it from the price the customer pays.

Why the Difference Costs You Money

Here's the trap. A lot of trades decide they "want to make 30%", add 30% markup, and assume they're hitting a 30% margin. They're not — a 30% markup is only about a 23% margin. Over a year of jobs, that gap is real money walking out the door.

As a rough guide, here's how common markups translate into margin:

• 10% markup ≈ 9% margin
• 20% markup ≈ 17% margin
• 25% markup ≈ 20% margin
• 50% markup ≈ 33% margin
• 100% markup ≈ 50% margin

Notice that to keep half of what the customer pays as profit, you have to double your cost. That surprises people the first time they see it.

The lesson: decide what margin you need to run a healthy business first, then work backwards to the markup that gets you there. Don't pick a markup and hope the margin sorts itself out.

Quick tip: to turn a target margin into the markup you need, use this — markup % = margin ÷ (1 − margin). For a 25% margin, that's 0.25 ÷ 0.75 = 33%. So you'd add 33% to your costs.

Working It Backwards From the Margin You Want

Most trade owners should start from the margin, because margin is what keeps the lights on after you've paid for vans, tools, insurance, fuel and your own time off the tools.

Say you've worked out you need a 30% margin to cover overheads and still earn a wage. Here's the move:

1. Decide your target margin: 30%.
2. Convert it to markup: 0.30 ÷ (1 − 0.30) = 0.30 ÷ 0.70 = 43% markup.
3. Apply 43% to your costs on every quote.

Do this once, write the number on the inside of the van door if you have to, and every job you price from then on protects the margin you actually need.

If you're still nailing down your base costs — your real hourly rate, your van running costs, your downtime — sort that out before you touch markup. Our guide on how to calculate your hourly rate walks through it, and how to price a job for profit ties the whole costing process together.

Don't Forget Materials, Tax and the Bits That Eat Margin

The clean textbook example assumes your "cost" is the full cost. In real life, things creep in and shrink the margin you thought you had:

• Materials creep. Supplier prices move, and the markup you set six months ago may not cover today's copper or board prices. Review it regularly. If you're unsure how much to add on parts, see material markup: how much to add.
• Waste and offcuts. Cable, pipe, timber — you rarely use every metre you buy. Price for what you draw down, not just what ends up in the wall.
• Returns and wasted trips. A second visit because a part was wrong is unpaid time. It comes straight out of margin.
• Tax and VAT. Margin is a pre-tax number. If you're VAT registered, the VAT isn't yours to keep — it never counts as margin. Check the current rules with VAT for tradespeople and confirm the latest thresholds on GOV.UK, as they change.

The point isn't to be gloomy about it — it's to set your markup high enough that these everyday leaks don't sink the margin you were counting on.

Make the Maths Automatic

Doing this sum by hand on every quote is where it falls apart. You're tired, you're parked outside the next job, and "add a bit on top" wins over careful percentages. That's exactly how underpricing creeps back in.

This is where a job-management system earns its keep. With Gaffer, you set your materials markup and labour rates once, and every quote applies them automatically — so the margin is baked in rather than guessed on the doorstep. You quote faster, you don't drop figures in your head, and the price that goes out is the price that protects your profit. Less admin, fewer underpriced jobs, and quotes that go out while the customer is still keen.

FAQs

Is markup the same as margin?

No. Markup is profit as a percentage of your cost; margin is profit as a percentage of the selling price. The same £25 profit on a £100 cost is a 25% markup but only a 20% margin.

How do I convert markup to margin?

Divide the markup by one plus the markup. A 25% markup is 0.25 ÷ 1.25 = 20% margin. To go the other way, use markup = margin ÷ (1 − margin).

What is a good profit margin for a trade business?

It varies by trade, overheads and whether you supply materials, so there's no single right answer. Many trade businesses aim for a margin in the 20–40% range as a rough guide — work out what covers your own overheads and wage rather than copying a figure.

Should I quote based on markup or margin?

Decide the margin you need to run the business, then convert it to the markup you apply on each quote. Margin tells you if the business is healthy; markup is just the tool you use to hit it.