The difference in plain English
Markup compares profit with cost. Margin compares profit with the selling price. Because the selling price is larger than the cost, the margin percentage is lower than the same markup percentage.
A £8,000 job example
| Method | Calculation | Selling price | Profit | Actual margin |
|---|---|---|---|---|
| 25% markup | £8,000 × 1.25 | £10,000 | £2,000 | 20% |
| 25% target margin | £8,000 ÷ 0.75 | £10,666.67 | £2,666.67 | 25% |
The two price formulas
Markup price: true cost × (1 + markup percentage).
Target-margin price: true cost ÷ (1 − target margin).
Use decimal percentages in the formula: 25% becomes 0.25.
Which method should a tradesperson use?
Either can work if it is used consistently and the true job cost is complete. Margin is useful when judging the amount retained from sales. Markup is often faster when adding an amount to known cost. The dangerous method is adding a familiar percentage to an incomplete cost.
Keep VAT outside the profit comparison
Where VAT applies, profit is normally assessed against the selling price before VAT. VAT collected is not business profit. Check the correct tax treatment with an accountant.
Use your own figures
The guide explains the decision. The calculator shows what that decision does to a real job.
Check a job nowQuestions
Is 20% markup the same as 20% margin?
No. A 20% markup produces a margin of about 16.7%. A 20% target margin requires a 25% markup on cost.
What profit margin should a builder use?
There is no universal correct margin. It depends on trade, project risk, capacity, overhead, competition and the return the business needs. Use a complete cost and test whether the resulting pounds per day make the job worthwhile.