Dr. Paul Borosky, DBA, MBA
Business Consultant & Author
Guide 4 of 11 · Make Money
Markup vs. Margin: What’s the Difference?
A 30% markup is not a 30% margin.
Add up the cost, multiply by something, send the number. It feels safe because the price is always higher than the cost. But the number you multiply by and the profit you keep are two different things. Most owners learn the difference when a big job loses money.
Last Updated: 10/27/2026 · Written by Dr. Paul Borosky, DBA, MBA
The Short Answer
What Is the Difference Between Markup and Margin?
Textbook Definition
Markup is profit expressed as a percentage of cost. Margin, or gross profit margin, is profit expressed as a percentage of selling price. For the same sale, markup is always the larger percentage.
In Plain English
Markup is how much you added on top of your cost. Margin is how much of every dollar the customer pays you get to keep. Same profit, two different percentages. The markup always looks better.
Markup to Margin
Margin = Markup ÷ (1 + Markup)
A 30% markup is a 23% margin
Price From a Target Margin
Price = Cost ÷ (1 − Target Margin)
$100 cost at 35%: $154
Margin here means gross profit margin on a job, the same number covered in gross margin vs. net margin.
Quick Reference
Common Markups and the Margins They Really Produce
| Markup | Margin |
|---|---|
| 20% | 17% |
| 30% | 23% |
| 50% | 33% |
| 100% | 50% |
Doubling your cost gives you a 50% margin, not 100%. An online store that buys at $20 and sells at $30 marks up 50%. Its margin is 33%, before shipping, returns, and payment fees take their share.
Show the Math
The Harbor Point Bid: $31,000 of Cost, Three Prices
Harbor Point is a 120-unit condo community. Mike built a year of cost at $31,000, using the true cost of labor. His old boss priced at cost times 1.3. Here is what that does.
| Method | Price | Profit | Margin |
|---|---|---|---|
| Cost × 1.3 | $40,300 | $9,300 | 23% |
| Target 33% margin | $46,300 | $15,300 | 33% |
| Target 35% margin | $47,700 | $16,700 | 35% |
Ridgeline Landscaping, fictional, from the book. Prices rounded to the nearest $100.
The Method
How to Price From the Margin, Step by Step
Convert your markup.
Markup divided by one plus markup. Is that the margin you thought you were getting?
Check your last five jobs.
What margin did each one actually produce, after the real cost of labor?
Set a target margin for each kind of work.
Steady contract work can run lower than installs and cleanups. It cannot run at 23%.
Price from the target.
Cost divided by one minus the target margin. That guarantees the job leaves the share you planned.
Know your walk-away number.
Before you walk in, know the lowest price you will take. If they push, trade scope, not price.
When Cost-Plus Works
Multiplying cost by a number is fine when the cost is easy to see and changes a lot, like materials passed through on an install, when the customer expects it, and when you know the margin it produces. A 25% markup on materials is a 20% margin. Fine, as long as you meant 20%.
Two Owners, Same Town
Mike Bid the Margin. Dale Matched the Low Bid.
Mike bid Harbor Point at a 33% target and signed at $46,000 a year, about 32.5%. The low bid was $37,000. The property manager said they had used that company before.
| Contract | Mike (Harbor Point) | Dale (apartments) |
|---|---|---|
| How the price was set | 33% target margin | Matched the $38,000 low bid |
| Yearly price | $46,000 | $38,000 |
| Profit before overhead | About $15,000 | $1,500 |
Fictional, from the book. Dale’s property was bigger than he measured; his costs came to $36,500.
The company that bid low knew something Dale did not. They did not want the job either.
Owner Warning
What Do Owners Get Wrong About Markup and Margin?
- Calling a markup a margin.
- Pricing big jobs at the same multiplier as small ones.
- Leaving the true cost of labor out of the job cost.
- Matching the lowest bid without knowing their own cost.
- Dropping the price the moment the customer frowns.
- Never rerunning break-even as overhead grows.
From the Book
Rich on Paper
Chapter 11 · Markup vs. Margin
Converting Markup to Margin
Doubling your cost, a 100% markup, gives you a 50% margin. Not 100%. Owners who don’t know that think they’re rich on paper and wonder why the bank account disagrees.
Pricing, margins, and the real cost of labor, worked on one business. It is all in the book.
Get the Book on Amazon →Pricing a Big Bid?
Dr. Paul works with owners as a part-time financial lead, building job costs and target margins before the bid goes out. See fractional CFO services.
Beyond the Book
Put These Numbers to Work on Your Own Business
The book teaches you to read the numbers. These three take you from reading them to using them.
Business Plan Templates
Start with a proven plan. A Word business plan and an Excel financial model built for your industry.
See the Templates →Business Plan Writing
Need a plan a lender will read? Dr. Paul writes it, financials included.
See Plan Writing →Business Consulting
You can read the numbers. Now fix them, one-on-one with Dr. Paul.
See Consulting Options →FAQ
Markup and Margin Questions
How do you convert markup to margin?
How do you price for a target margin?
Is a 50% markup a 50% margin?
When is cost-plus pricing OK?
Keep Going
Related Guides
This guide is part of the small business finance guide.
Written by Dr. Paul Borosky, DBA, MBA, business consultant, author, and adjunct finance instructor with an MBA focused in finance.
This page is for general educational purposes only. It is not legal, financial, tax, accounting, or lending advice. Tax rules change by place and by year. Ridgeline Landscaping and its figures are a fictional illustration from the book, not a projection for your business. For decisions about your own business, consult a qualified professional.