Margin Vs Markup – Step Up

A question that regularly comes up is what is the difference between Margin and Markup?

Both terms sound very similar and are both related to your overall profit that you make on a job.

Knowing the difference between a markup and a margin can help you achieve the profit you want out of your jobs. If you know how much profit you want to make, you can set your prices accordingly using the margin vs mark up formulas below.

If you don't know your margins and markup, you may not be pricing your jobs correctly, this could cause you to overprice or under price jobs.

- Consider all business overheads and any miscellaneous items required for the build in your upcoming job.

So what's the difference?

Margin: Is the the Total price minus the cost of materials and any business costs, this leaves you with your Gross Profit, divide your Gross Profit by the total price of the job/section, this will equal your profit margin.

For example, you price your Labour at $200,000. The labour for the job costs you $150,000.

First, find your gross profit, or the difference between the revenue ($200,000) and the cost ($150,000).

$200,000 – $150,000 = $50,000 gross profit

To find the margin, divide gross profit by the Total price.

$50,000 / $200,000 = 0.25 margin

To make the margin a percentage, multiply the result by 100.

0.25 X 100 = 25% margin

The margin is 25%. That means you keep 25% of your total revenue. You spent the other 75% of your revenue on Labour for the job.

Markup: Is the Total Price minus the cost of materials and any business costs, this leaves you with your Gross Profit, divide your Gros Profit by the cost of materials and any business costs, this will equal your mark up.

Using the Labour example from above, you priced labour $200,000. The labour costs you $150,000.

First, find the gross profit.

$200 – $150 = $50 gross profit

To write the markup as a percentage, divide the gross profit by the COGS.

$50 / $150 = 0.33 markup

To make the markup a percentage, multiply the result by 100.

0.33 X 100 = 33% markup

The markup is 33%. That means you priced the labour for 33% more than the amount it costs you.