Contractor Finance Glossary
What is Markup vs Margin?
Definition reviewed .
Also called: markup versus margin
Markup is the amount above cost expressed as a percent of cost. Margin is that amount expressed as a percent of selling price. Applying a target margin as if it were a markup underprices a job.
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.
For positive prices and costs, 25% markup converts to 20% margin; 40% to 28.57%; 50% to 33.33%; 100% to 50%. In staffing, a bill-pay dollar spread is not itself a percentage markup, and pay-only margin excludes employer burden and other delivery costs. Calculate those costs before judging profit.
How it is calculated
Markup = (price minus cost) divided by cost. Margin = (price minus cost) divided by price. In decimal form, margin = markup divided by (1+markup); markup = margin divided by (1-margin). These conversions require positive cost and price; margin cannot be 100% with positive cost.
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