Markup vs Margin Calculator for Australian Tradies

Why a 20% markup is not a 20% margin

Markup and margin both describe the profit on a job, but they measure it against different things. Markup is profit as a share of cost. Margin is profit as a share of price. Because price is always bigger than cost, the same dollars of profit come out as a smaller percentage when you call it margin. Plenty of tradies add 20% to their costs, call it a 20% margin, and wonder where the money went at the end of the year.

Take a job that costs $10,000 in materials, labour and subbies. Price it both ways:

Same cost, same "20%", $500 difference in profit. Adding 20% gets you $12,000, and $2,000 of that price is only a 16.7% margin. To actually keep 20% of the price you have to charge $12,500, which is a 25.0% markup. On one job the gap is a few hundred dollars. Across a year of jobs it is the difference between a business that pays you properly and one that only looks busy.

The conversion formulas

Two lines of maths cover every case. Write the percentages as decimals (20% = 0.2):

• Markup to margin: margin = markup / (1 + markup). A 20% markup is 0.2 / 1.2 = 16.7% margin.
• Margin to markup: markup = margin / (1 - margin). A 20% margin is 0.2 / 0.8 = 25.0% markup.

The calculator above does this for you either way. Type a markup and the margin fills in, or type the margin you want and it tells you the markup to use. For the markups tradies use most:

Notice the gap widens as the numbers climb. At 10% markup you lose less than a point calling it margin. At 50% markup you are only keeping a third of the price. The bigger the percentage, the bigger the mistake if you mix them up.

When to use markup and when to use margin

Use markup to build a price. Quoting starts from cost: you add up the materials, the hours at your charge-out rate, the subbies and the hire, then you put a percentage on top. Markup is that percentage. It is the right tool because cost is the number you have in front of you. Set your charge-out rate so your labour already carries its share of overheads, then mark up the whole job.

Use margin to judge a job or the business. Once the job is done, the question is what share of the money you kept. That is margin, and it is the figure your accountant, your bank and your own profit and loss all speak in. A target margin is the honest way to set a goal for the year because it is measured against the price, which is what actually lands in the bank.

Connect the two once. Decide the margin you want, convert it to the markup that delivers it, and use that markup on every quote. Then check each finished job against the target margin with the job profit calculator. If the margin keeps coming in under target, either the markup is too low or the costs blew out, and knowing which is the whole point of job costing.

Two things to keep clear. GST goes on after the markup, never before - price the job ex-GST, then add GST if you are registered (the GST quote calculator does that step). And a percentage on a quote only holds if the quote holds, so be clear about whether you are giving a quote or an estimate before the number goes out the door. Once the job is running, TrackYaTradie tracks the hours and costs against the price so you see the real margin move, not the one you hoped for. See the rest of the free tools for the other numbers a quote needs.

Common questions