Markup vs margin: the difference, with trade examples
Quick answer
Markup is profit as a percentage of cost; margin is profit as a percentage of the selling price. On £1,000 of materials sold for £1,250, the markup is 25% but the margin is only 20%. To hit a target margin, divide cost by (1 minus the margin). A 25% margin needs a 33.3% markup.
On this page
- What is the difference between markup and margin in brief?
- Who needs to understand markup and margin?
- How do you calculate markup and margin, step by step?
- What does getting it wrong cost you?
- Worked example: a combi boiler swap
- What are the most common markup and margin mistakes?
- What software helps with job costing?
- FAQs
Mixing up markup and margin is one of the easiest ways for a trade business to earn less than it thinks. Here is the difference in plain English, with formulas, a conversion table and worked examples on materials and labour.
What is the difference between markup and margin in brief?
- Profit
- Selling price minus cost
- Markup %
- Profit divided by cost, times 100
- Margin %
- Profit divided by selling price, times 100
- Price from a markup
- Cost times (1 plus markup)
- Price from a target margin
- Cost divided by (1 minus margin)
- Markup to margin
- Markup divided by (1 plus markup)
- Margin to markup
- Margin divided by (1 minus margin)
The key point: for the same job, the margin percentage is always lower than the markup percentage. If someone tells you to "aim for a 25% margin", adding 25% to your costs will not get you there.
Who needs to understand markup and margin?
Anyone who prices jobs: sole traders adding a bit on top of materials, firms setting a target margin for every quote, and office managers checking whether finished jobs made money. It matters most in trades with a lot of materials in each job, such as plumbing and heating, kitchens and bathrooms, roofing and building, where a small percentage error on a big materials bill adds up fast.
How do you calculate markup and margin, step by step?
- Add up your direct costs. Materials (excluding VAT if you are VAT registered and can reclaim it), subcontractors, plant hire and skips.
- Decide whether you are working to a markup or a margin. Markup is easier on site. Margin is what your accountant and your profit and loss report show.
- Using a markup: multiply cost by (1 plus the markup). £800 at 25% markup is £800 times 1.25, which is £1,000.
- Using a target margin: divide cost by (1 minus the margin). £800 at a 25% margin is £800 divided by 0.75, which is £1,066.67.
- Check the result. Profit divided by price should equal your target margin.
- Add VAT last, if you are registered. The standard rate is 20%; some work is at 5% or 0%.
Our free markup and margin calculator does these sums for you, both ways, with an optional VAT-inclusive price.
Markup to margin conversion table
| Markup on cost | Margin on price | Price for £1,000 of cost |
|---|---|---|
| 10% | 9.1% | £1,100 |
| 15% | 13.0% | £1,150 |
| 20% | 16.7% | £1,200 |
| 25% | 20.0% | £1,250 |
| 30% | 23.1% | £1,300 |
| 33.3% | 25.0% | £1,333 |
| 40% | 28.6% | £1,400 |
| 50% | 33.3% | £1,500 |
| 66.7% | 40.0% | £1,667 |
| 100% | 50.0% | £2,000 |
What does getting it wrong cost you?
Suppose a heating firm buys £80,000 of materials a year and wants a 25% margin on them. If it adds a 25% markup instead, it charges £100,000. To hit a true 25% margin it needed to charge £106,666.67 (£80,000 divided by 0.75). That is £6,666.67 a year of profit it thought it was making but was not.
There is no legal deadline here, but there is a practical one: review your markups whenever supplier prices change, and at least once a year when you do your accounts. A markup that worked when copper was cheaper may not work now.
VAT is not profit. If you are VAT registered, work out markup and margin on figures excluding VAT. The 20% VAT you add is collected for HMRC, and the VAT you pay on materials is usually reclaimed. If you are not VAT registered, the VAT you pay on materials is a real cost, so include it in your cost price.
Worked example: a combi boiler swap
A VAT-registered heating engineer prices a combi boiler replacement. All figures are examples, not market prices.
Materials
The boiler, flue, filter and fittings cost £1,400 excluding VAT. With a 25% markup, the materials price is £1,750, a profit of £350. The margin on materials is £350 divided by £1,750, which is 20%.
If the engineer actually wanted a 25% margin on materials, the price should be £1,400 divided by 0.75, which is £1,866.67. That is a profit of £466.67 and a markup of 33.3%.
Labour
The job takes 2 days. The engineer charges £280 a day (£560), and the labour costs the business £200 a day in wages and on-costs (£400). Labour profit is £160.
The whole job
| Cost | Price | Profit | |
|---|---|---|---|
| Materials (25% markup) | £1,400.00 | £1,750.00 | £350.00 |
| Labour (2 days) | £400.00 | £560.00 | £160.00 |
| Total | £1,800.00 | £2,310.00 | £510.00 |
Gross margin on the job is £510 divided by £2,310, which is 22.1%. The overall markup on cost is £510 divided by £1,800, which is 28.3%. The customer pays £2,310 plus 20% VAT, so £2,772.
Now take off overheads. If the van, insurance, phone, software and office costs work out at £300 for this job, net profit is £210, a net margin of 9.1%. That gap between 22.1% and 9.1% is why your markup has to cover more than "a bit on top". To put these numbers into a written price, follow our guide on how to write a quote that wins work.
Using different markups on different lines
Many trades use a lower markup on expensive items and a higher one on small parts, because customers compare big-ticket prices online. Here is how that blends on the same boiler job (example figures):
| Line | Cost | Markup | Price |
|---|---|---|---|
| Boiler | £1,100 | 15% | £1,265.00 |
| Flue, filter, fittings and sundries | £300 | 50% | £450.00 |
| Total | £1,400 | 22.5% | £1,715.00 |
The blended markup is £315 divided by £1,400, which is 22.5%, a margin of 18.4%. That is slightly less than a flat 25% markup, but the boiler price looks sharper to the customer.
What are the most common markup and margin mistakes?
- Using the same percentage for both. A 30% markup is a 23.1% margin, not 30%.
- Forgetting labour costs. Your own time has a cost, even as a sole trader.
- Ignoring overheads. Gross margin pays for the van and insurance before it pays you.
- Including VAT in the margin. Work it out on ex VAT figures if you are registered.
- Flat markup on everything. A big markup on a £2,000 heat pump can lose you the job, while a small markup on fittings leaves money on the table.
- Never checking finished jobs. Compare quoted margin with actual margin to see which jobs really pay.
What software helps with job costing?
A spreadsheet can work out markup on one quote. What it cannot easily do is compare quoted margin with the real result once supplier invoices, extra hours and variations come in. That is what job costing software is for.
Our verdict
Fergus is our pick for job costing in materials-heavy trades such as plumbing, heating and building. It matches supplier invoices to jobs, includes price books on both plans and adds purchase orders and tiered pricing on Pro. List prices start from £39 a month for Essentials and £45 for Pro (VAT treatment not stated on the pricing page; checked 12 Oct 2026); a "90% off til December" offer was shown, but its terms were not clear. Its Trustpilot score is 3.8 from just 14 reviews (checked 12 Oct 2026), a small sample. Read our full Fergus review for the details.
If you mainly need quick quotes rather than deep costing, Tradify's kit bundles and price-list imports make it easy to apply consistent markups, and ServiceM8 offers job costing and markup billing as add-ons.
Frequently asked questions
What is the difference between markup and margin?
Both measure the same profit in pounds, but against different numbers. Markup divides profit by your cost. Margin divides profit by your selling price. Because the price is always bigger than the cost, the margin percentage is always smaller than the markup percentage for the same job.
Is a 20% markup the same as a 20% margin?
No. A 20% markup on £1,000 gives a price of £1,200 and a profit of £200, which is a 16.7% margin. To get a true 20% margin on £1,000 of cost, you need to charge £1,250, which is a 25% markup.
How do I calculate a selling price from a target margin?
Divide the cost by (1 minus the margin as a decimal). For a 30% margin on £700 of cost, divide £700 by 0.70 to get £1,000. Check it: £300 profit divided by the £1,000 price is 30%.
What markup should tradespeople use on materials?
There is no standard figure, and it varies by trade, job size and how much handling is involved. Many trades use a lower markup on big-ticket items like boilers and a higher one on small parts and sundries. Whatever you choose, make sure your overall margin covers overheads before profit.
Should I work out margin before or after VAT?
Before. VAT is collected for HMRC, so it is not part of your income or profit. Work out markup and margin on prices excluding VAT, then add VAT at 20% (or 5% or 0% where those rates apply) at the end.
What is the difference between gross margin and net margin?
Gross margin is profit after the direct costs of the job (materials, subcontractors, direct labour). Net margin is what is left after overheads too, such as your van, insurance, phone, software and office costs. A healthy gross margin can still hide a thin net margin.
Sources and checks
Prices, features and ratings were checked on 12 October 2026 against these sources. Software prices change often, so confirm on the vendor's site before you buy.