Markup vs margin: worked examples for small business

What is the difference between markup and margin?

Markup is a percentage added on top of your cost. Margin is the share of the selling price that is profit. Same job, same profit, two different percentages.

Markup vs margin: a worked example

Example figures only. Say a job costs you $100 (materials, your labour and overhead) and you want $25 of profit.

Selling price: $100 + $25 = $125. Markup: $25 ÷ $100 = 25%. Margin: $25 ÷ $125 = 20%.

So a 25% markup and a 20% margin are the same price. If you wanted a 25% margin instead, the price is $100 ÷ (1 − 0.25) = $133.33, which is more than a 25% markup gives.

How do I calculate a selling price from cost?

With markup: price = cost × (1 + markup). With margin: price = cost ÷ (1 − margin). Write the percentage as a decimal, so 25% is 0.25.

Margin has to stay under 100%. At 100% the cost would be zero and no price could be worked out.

What does a discount do to profit?

A discount lowers the price but not your cost, so profit drops by the full amount. In the example, a $10 discount on the $125 price leaves $15 of profit, not $25. Check the new price against your cost before you agree.

Try it with your own costs

Type your costs, choose markup or margin, and the calculator shows the price and the other percentage. Sales tax is not included. Add it afterwards as Tax A or Tax B, using the rate your province or the Canada Revenue Agency gives you.