Contractor Finance Glossary
What is Markup vs Margin?
Also called: markup versus margin
Markup is the amount added to cost, expressed as a percent of cost or of the sell price. Margin is profit as a percent of the sell price. They are not the same number, and confusing them is a common pricing error.
A job that costs $100 and sells for $125 carries a 25% markup on cost, but only a 20% gross margin (25 of 125). The gap widens as markup rises, so a business that thinks a 40% markup means a 40% margin is systematically underpricing.
In staffing the confusion is acute: the spread between bill rate and pay rate is a markup, and it feels like margin, but after full employment burden, recruiter time, and the cost of financing net-30 terms, a 25 to 35% markup often nets a low-single-digit margin. Always convert markup to margin before you decide a price is healthy.
How it is calculated
Markup on cost = (price minus cost) divided by cost. Gross margin = (price minus cost) divided by price. Margin is always the smaller number for a profitable job.
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