Running the business
Markup and margin
- where
- selling price (£)
- cost (£)
- markup on cost (%)
- gross profit (£)
- margin on selling price (%)
Explain this equation
Turns a markup on cost into a selling price, and shows the margin on the price that results. Use it to avoid overstating your profit.
c is the cost and μ the markup as a percentage of cost. Pr is the selling price and G the gross profit. mg is the margin: profit as a percentage of the selling price.
Markup is measured against cost and margin against price. Since the price is cost plus profit, the margin is always smaller than the markup: μ/(100 + μ).
Sense check: a 25% markup on £100 sells at £125 with £25 profit, a 20% margin. A 50% markup is a 33.3% margin. For a target margin m, use a markup of m/(100 − m) × 100.
Watch out: these figures are before VAT and before overheads.
Turns a markup on cost into a selling price and shows the margin it really gives on the price.
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. To get a target margin m, the markup needed is m / (100 − m) × 100: a 20% margin needs a 25% markup.
Common mistake
Adding 20% to cost and believing the job makes a 20% margin. It makes 16.7%.
Limits
Before VAT and before overheads. Margin here is gross margin on the item or job.
Sources
Results are calculations from the published methods and manufacturer figures shown, and depend on the data you enter. Always follow the manufacturers’ system and product data, BS 8212, BS EN 13914 and Building Regulations. Coverage rates vary by product, background and thickness. Check prices, VAT and CIS rules with your own records and HMRC.