In short
- Markup is added to cost. Margin is a share of the selling price.
- A 25% markup gives a 20% margin, not 25%.
- Price on margin, because margin is what pays your overheads.
Markup vs margin is the arithmetic most underpricing comes from. Markup is what you add to your cost. Margin is what is left as a share of what the client pays. They are different numbers and they are routinely confused, which is how a job that looked profitable ends up funding itself.
Markup vs margin: the arithmetic
A job costs you R10,000 in materials and labour.
| Markup | Margin | |
|---|---|---|
| Formula | (Price − Cost) ÷ Cost | (Price − Cost) ÷ Price |
| Add 25% | R12,500 | — |
| Resulting margin | 20% | — |
| Want 25% margin | — | R13,333 |
| Required markup | — | 33% |
So a 25% markup is a 20% margin. If you need 25% margin, you must add 33%. On a R10,000 job that is R833 of difference, and across a year of jobs it is the difference between a business that works and one that does not.
What your cost actually is
Most underpricing comes from an incomplete cost, not from the markup. Count all of it:
- Materials, including waste and offcuts
- Labour at the real rate, including time on site that is not billable
- Travel and fuel
- Equipment hire, consumables, and wear
- The time spent quoting, ordering and invoicing
- A share of overheads: insurance, vehicle, phone, accounting, banking
That last line is the one left out most often. Overheads run whether you work or not, and they have to come out of margin.
Setting the number
Work backwards. Total annual overheads plus the profit you need, divided by the number of billable jobs or hours you realistically expect, gives the margin each job has to carry. That is a more useful figure than a percentage borrowed from someone in a different trade.
Common questions
What margin should I aim for?
It depends entirely on your overheads and volume. Working backwards from your annual costs gives you a real number rather than a rule of thumb.
Should I show markup on the quotation?
No. Show line items and totals. How you arrived at the price is your business.
What about VAT?
VAT sits on top of your price and is not yours. It never forms part of margin.
Save your price list once and quotes build from figures you have already worked out.
Create a professional quotationDisclaimer: This content is for general information only and does not constitute legal, tax, accounting or financial advice. Always confirm important requirements with SARS, the relevant authority or a qualified professional.
