Two percentages, two different bases
- Markup is profit as a percentage of cost: you start from the cost and add a percentage.
- Margin is profit as a percentage of the selling price: the share of every sale that is left after covering the cost.
Because the price is always larger than the cost, the margin is always smaller than the markup for the same job. A 25% markup gives a 20% margin; to earn a 25% margin you need a 33.33% markup.
Start from a complete cost
Either percentage is only as good as the cost underneath it. For a fabrication job, include at least material (with scrap), machine time at a real hourly rate, labor for secondary operations such as bending, welding or finishing, consumables and packaging, and delivery if you pay it.
The machine hourly cost guide explains how to get the machine rate, and the sheet yield guide how to include scrap.
Which one should you use?
Use whichever your business already reports, but be consistent. If your targets and financial statements talk about margin (gross margin is usually reported as a share of revenue), set prices from the margin: price = cost ÷ (1 − margin). If you prefer to think in markups, convert your target margin first with the table in the example.
Calculate on prices before VAT or sales tax, and add the tax at the end with the VAT calculator.
Formula
- Profit = Price − Cost
- Margin = Profit ÷ Price × 100
- Markup = Profit ÷ Cost × 100
- Price for a target margin = Cost ÷ (1 − Margin ÷ 100)
- Markup = Margin ÷ (100 − Margin) × 100
Worked example
Illustrative quote (figures are made up for the explanation)
- 1Material 180 + laser time 1.5 h × 40 = 60 + bending and finishing 2 h × 20 = 40 + consumables and packaging 20 → cost 300
- 2Target 25% margin: 300 ÷ (1 − 0.25) = 400 → profit 100, which is a 33.33% markup
- 3Common mistake, adding 25% to the cost: 300 × 1.25 = 375 → profit 75, only a 20% margin
- 4The difference is 25 per job: a quarter of the profit you planned
| Margin | Markup |
|---|---|
| 10% | 11.11% |
| 20% | 25% |
| 25% | 33.33% |
| 30% | 42.86% |
| 40% | 66.67% |
| 50% | 100% |
Quote 400 (before tax) to keep a 25% margin on a 300 cost.
The example is illustrative. Its numbers are checked by automated tests.
Assumptions and limitations
- Prices and costs exclude VAT or sales tax.
- Margin here is gross margin on the job: it does not include general overheads unless you put them in the cost.
- The example quote is illustrative: it is not a real job or a recommended price.