Markup and margin are not the same number
Two words for two different divisions. Charge a markup and call it a margin and you are short on every job, by a gap that widens the more you add.
The two divisions
Both numbers are the same dollars of profit over a different bottom half. That is the entire difference, and it is worth writing out once:
A job costs $100.00. Add 30% and you charge $130.00, so the profit is $30.00. Now divide it two ways:
$30.00 ÷ $130.00 = 23.08% margin
Same job, same $30.00, and two answers: 30% and 23.08%. The markup divides by the cost, which is the smaller of the two bottom halves, so it always reads higher than the margin it leaves. Every time.
What each markup actually leaves
The whole table, on a job costing $10,000.00. Read across: the figure you add, and the share of the invoice you keep after adding it.
| Markup on cost | You charge | Profit | Margin |
|---|---|---|---|
| 10.00% | $11,000.00 | $1,000.00 | 9.09% |
| 15.00% | $11,500.00 | $1,500.00 | 13.04% |
| 20.00% | $12,000.00 | $2,000.00 | 16.67% |
| 25.00% | $12,500.00 | $2,500.00 | 20.00% |
| 30.00% | $13,000.00 | $3,000.00 | 23.08% |
| 35.00% | $13,500.00 | $3,500.00 | 25.93% |
| 40.00% | $14,000.00 | $4,000.00 | 28.57% |
| 50.00% | $15,000.00 | $5,000.00 | 33.33% |
| 100.00% | $20,000.00 | $10,000.00 | 50.00% |
The gap is not a constant, which is what makes this expensive rather than merely untidy. It widens as the markup goes up, so the contractor who thinks he is doing better than most is the one furthest out.
Going the other way, which is the useful direction
Nobody sets out to hit a markup. What a contractor decides is what he needs to keep out of every dollar that comes in — that is a margin — and then has to work out what to add to a cost to land on it.
| Margin you want to keep | Markup you have to add |
|---|---|
| 10.00% | 11.11% |
| 15.00% | 17.65% |
| 20.00% | 25.00% |
| 25.00% | 33.33% |
| 30.00% | 42.86% |
| 35.00% | 53.85% |
| 40.00% | 66.67% |
| 50.00% | 100.00% |
The row that costs the most money is the third one. A contractor who wants to keep a fifth of every dollar has to add a quarter, and adding a fifth instead is the single commonest way a busy year ends with nothing in it.
Where this sits in a price
Neither figure decides what a job should cost. The cost comes first — your own labour rate, your own material prices, the quantities the room actually measures — and the markup goes on top of that. A margin applied to a cost nobody worked out is a percentage of a guess.
That is the order Trueline works in and the reason it holds a rate book rather than a price list: quantities come off the room, rates come off the book you typed, and the job markup is one number applied at the end where you can see it. There is no market data in it, because a national average is not what anybody here charges.
The arithmetic on this page is the app’s own — it is quote() from the pricing module, the same function that puts a total on a proposal, run in your browser on the figures you type. Nothing is sent anywhere.
Questions people ask
- Is a 30% markup the same as a 30% margin?
- No. A 30% markup on a $100.00 cost gives a $130.00 price and $30.00 of profit, and $30.00 out of $130.00 is a 23.08% margin. Markup divides the profit by the cost; margin divides it by the price. The margin is always the smaller of the two.
- What markup do I need for a 30% margin?
- 42.86%. The formula is the margin divided by one minus the margin, so 0.30 ÷ 0.70. Anything less than that and the margin lands under thirty.
- Which one should I be quoting in?
- Price in whichever your own numbers are kept in, and be certain which that is. The trap is not preferring one — it is a spreadsheet whose column heading says margin and whose formula adds a markup, because nothing on the screen ever says so.
- Does overhead go in the markup or the margin?
- That is a decision about your own books rather than an arithmetic question, and it is why this page will not answer it for you. What matters is that overhead is in one of them and only one: counted in the cost before the markup, or covered out of the margin after it. Counted twice and you are dear; counted in neither and you are working for nothing.
This is the app’s arithmetic, not a copy of it
The figures above are not worked out by anything written for this page. The form hands what you typed to Trueline’s own measuring engine — the same modules the iPhone app runs — and prints what comes back. Lengths are held as whole nanometres and money as whole cents, so there is no floating-point number anywhere in a measurement, here or in the app.
The one thing a web form cannot do is know whether anybody put a tape on the wall. That is the whole of the difference between this page and the app it comes out of: Trueline carries where every length came from — scanned, drawn or measured — onto the drawing, the takeoff and the proposal a client reads. You can also take the blank forms and use them with whatever you already have.