Guide
Margin vs Markup: What is the difference?
Margin and markup are connected, but they are not the same thing. If you confuse them, it is easy to quote work too cheaply or misread how much room you really have in a price.
In this guide
- Margin works back from the selling price.
- Markup works up from the cost.
- A 25% markup is not the same as a 25% margin.
Last updated
27 April 2026
Category
Pricing & Profit
Use with
3 related calculators
Guide
Margin measures profit as a share of the selling price
Margin tells you how much of the final sale price is left as gross profit after direct cost is covered.
That makes margin useful when you want to understand how much room is left inside the customer-facing price, not just how much you added on top of cost.
Simple margin formula
- Profit = selling price - cost
- Margin % = profit / selling price x 100
Markup measures how much you added on top of cost
Markup starts with your cost and asks how much extra you added before arriving at the sell price.
That makes markup useful when you build quotes from a cost base and want a quick uplift percentage.
Simple markup formula
- Profit = selling price - cost
- Markup % = profit / cost x 100
Why businesses confuse them
The same sale can have both a margin and a markup, so people often treat the percentages as interchangeable when they are not.
The confusion usually starts when someone says they need a 30% margin but then applies a 30% markup to cost. That produces a different result and can leave the business underpriced.
- Margin uses the final sale price as the denominator.
- Markup uses the original cost as the denominator.
- Because the denominator changes, the percentages change too.
If you quote from markup but review performance using margin, you need to know exactly which percentage you are looking at.
How to use each measure in practice
Use margin when you want to judge whether a final price leaves enough profit room after the job is delivered.
Use markup when you are building a price from cost and need a quick uplift rule, but always sense-check the resulting margin before sending the quote.
- Review quotes and completed jobs using margin.
- Build prices from cost using markup only if you understand what margin that creates.
- Keep the two terms consistent across your team so quotes, reports, and pricing targets do not drift apart.
Worked example
See it in a realistic business scenario
Use the example below as a quick sense check before you apply the same logic to your own pricing, payroll, quoting, or tax workflow.
Worked example
Worked example: the same sale, two different percentages
A business sells a job for $1,000 and the direct cost is $800.
- Selling price: $1,000
- Cost: $800
- Profit: $200
Calculation steps
- Margin = $200 / $1,000 = 20%.
- Markup = $200 / $800 = 25%.
- The dollars are identical, but the percentage changes because the base number changed.
That one sale produces a 20% margin and a 25% markup. If you quote aiming for one but measure the other, the business can misread its pricing position.
Important note
Use the guide as a practical reference, not as advice
This page is designed to support better commercial decisions, but it should not be treated as a substitute for professional advice.
Important note
BizTools.au is designed to make business numbers easier to check, but calculator outputs still need judgment and real-world context.
- Calculator results are general estimates only and depend on the figures entered.
- Examples and summaries are provided for general information, not legal, tax, accounting, payroll, or financial advice.
- Before relying on a result for a real decision, check your assumptions and get qualified advice where needed.
Related tools
Use the calculators that connect to this guide
These linked tools help you turn the ideas in the guide into a faster number check or a cleaner pricing decision.
Profit Margin Calculator
Check how much profit you keep from a sale after direct cost and see the margin percentage instantly.
Open calculatorMarkup Calculator
See the dollar profit and markup percentage between cost and selling price before you quote the work.
Open calculatorService Pricing Calculator
Turn labour cost, overhead allocation, and a target margin into a required service price.
Open calculatorRelated guides
Keep reading
These guides cover nearby pricing, GST, staffing, or quoting questions that often sit beside the same decision.
How to Price Services for Profit
Build service prices from cost, overhead, and target profit so the job still works after delivery.
Price for profitHow to Price Services Profitably in Australia
Build more reliable service prices from labour, overhead recovery, and margin targets instead of rough guesswork.
Price services better