Markup vs margin calculator

Both numbers describe the same profit dollars. They divide by different things.

Profit  = price − cost
Margin  = profit ÷ price
Markup  = profit ÷ cost

Price from a target margin  = cost ÷ (1 − margin)
Price from a markup         = cost × (1 + markup)
Margin from markup          = markup ÷ (1 + markup)
Markup from margin          = margin ÷ (1 − margin)

Why 20% markup is not 20% margin

On $100 of cost, a 20% markup gives a $120 price and $20 of profit. $20 is 16.7% of $120. To keep 20% of the price you need a $125 price, which is a 25% markup. The gap grows as the rate grows: a 50% markup is a 33.3% margin.

Which one to use where

• Estimating and bidding: set your target as a margin, because your income statement, WIP schedule and bonding agent all read gross profit as a share of revenue.
• Change orders and T&M: contracts almost always state allowed overhead and profit as a markup on cost. Apply it as a markup.
• Overhead recovery: if company overhead runs 10% of revenue, a 10% markup does not cover it. You need 11.1%.

Margin here is gross margin on the cost you enter. If that cost leaves out job overhead or burden, the real margin is lower.