Running the business
Markup and margin
- where
- selling price (£)
- cost (£)
- markup on cost (%)
- gross profit (£)
- margin on selling price (%)
Explain this equation
Shows the selling price a markup gives, and the margin that really leaves, so you do not confuse the two when pricing paint and materials.
c is what an item costs you and μ the markup you add as a percentage of cost. Pr is the selling price and G the profit in pounds. mg is that profit as a percentage of the selling price, which is the margin.
Markup is measured against cost, margin against price. Because the price is bigger than the cost, the same profit is a smaller percentage of the price, which is why the margin formula divides by 100 + μ.
Sense check: 25% markup on £100 gives £125 and a 20% margin. 50% markup gives a 33.3% margin. A 100% markup is only a 50% margin.
Watch out: these figures are before VAT and overheads.
Turns a markup on cost into a selling price and shows the margin it really gives.
Enter your values to see the result.
Good to know
Markup is profit as a percentage of cost; margin is profit as a percentage of the selling price. A 25% markup is a 20% margin; a 50% markup is a 33.3% margin. For a target margin m, the markup needed is m / (100 − m) × 100.
Common mistake
Adding 20% to the cost of paint and thinking the job makes a 20% margin on it. It makes 16.7%.
Limits
Before VAT and overheads. Gross margin on the item or job.
Sources
Results are calculations from the published methods and figures shown, and depend on the data you enter. Coverage depends on the product, surface and application. Always follow the paint and wallcovering manufacturers’ data sheets and BS 6150 / BS 8000-12. Check prices and VAT with your own records and HMRC.