Markup vs Margin: The Difference That Decides What You Keep

↑ Part of the Pricing series · How to Price a Job and Not Lose Money

Markup is the percentage you add on top of your cost. Margin is the percentage of the final price that you keep. They are never the same number: add a 20% markup and you keep a 16.7% margin. Trades who don't know the gap think they're earning 20% and quietly earn less, on every single job.

It's the most common pricing mistake we see, and our guide to pricing a job only has room to touch it. Five minutes here, one small habit change, and the leak stops.

Part 1Why one word costs trades real money

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Say a job costs you £100 and you add 20%. You charge £120 and you're happy: twenty per cent, tidy. But look at where the money actually sits. Your profit is £20 out of the £120 the customer paid, and £20 out of £120 is 16.7%. You said twenty. You kept sixteen and a bit.

On a £100 job the gap is small change. Scale it up and it isn't. Across a year of work priced at "20%" the missing few per cent is a holiday, a van payment, or the difference between a business that's building something and one that's treading water. And the trap is comfortable precisely because nothing looks wrong: the jobs come in, the invoices get paid, and the shortfall never announces itself.

Part 2What is markup, exactly?

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Markup starts from your cost and works up. Take everything the job costs you — materials, labour, the hidden costs, your overhead recovery (your day rate covers that layer) — and add your chosen percentage on top. Cost £1,000, markup 25%, price £1,250. Simple to calculate, which is why almost everyone prices this way, and there's nothing wrong with that.

The problem is never the method. It's assuming the markup number describes what you keep.

Part 3What is margin, exactly?

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Margin starts from the price and works back. It asks: of the money the customer hands over, what share is profit? Price £1,250, profit £250, margin 20%. Margin is the honest measure of a job, because it's expressed in the same money you'll actually bank, and it's the number an accountant, a lender or a buyer of your business would ask about.

So the two numbers describe the same profit from opposite ends, and margin is always the smaller one.

Part 4How the two line up

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• 10% markup keeps you a 9.1% margin
• 20% markup keeps you a 16.7% margin
• 25% markup keeps you a 20% margin
• 33% markup keeps you a 25% margin
• 50% markup keeps you a 33% margin
• 100% markup keeps you a 50% margin

Two of those are worth memorising: to keep 20%, add 25%, and to keep a third, add half. If you want the sums behind it: markup = margin ÷ (100% − margin), and margin = markup ÷ (100% + markup).

Part 5A worked example, both directions

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You've costed a bathroom at £1,000 complete, and you've decided the job should keep you a 20% margin. Don't add 20%. Convert first: 20% ÷ (100% − 20%) = 25% markup. Price the job at £1,250. Now check it backwards: profit £250, price £1,250, £250 ÷ £1,250 = 20%. The margin you wanted is the margin you'll bank.

Add 20% instead and you'd quote £1,200: fifty pounds lighter, and you'd never know where it went, because the quote still looked right.

Part 6Which number should you actually use?

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Use both, for the jobs they're good at. Price with markup, because it's quick and it builds naturally from your costs. Judge with margin, because it tells the truth about what you keep. The habit that protects you is the conversion in the middle: decide the margin you want first, convert it to the markup that delivers it, and only then touch the quote.

And remember the markup only means anything if the cost under it is complete. A perfect 25% on a job missing £600 of hidden costs is still a loss dressed up as a profit.

Common questionsMarkup vs margin: quick FAQ

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Is a 20% markup the same as a 20% margin?

No. A 20% markup on cost leaves a 16.7% margin on the price. To actually keep 20% of the price, you need a 25% markup. Margin is always the smaller number of the two.

How do I convert a markup to a margin?

Divide the markup by one-hundred-per-cent-plus-the-markup: a 50% markup is 50 ÷ 150 = 33% margin. To go the other way, divide the margin by one-hundred-per-cent-minus-the-margin: a 25% margin needs 25 ÷ 75 = 33% markup.

What margin should a UK trade aim for?

There's no single right number: it depends on your trade, your overheads and how strong your order book is. What matters is choosing your margin deliberately, converting it to the right markup, and checking real jobs against it, rather than inheriting a percentage you've never tested.

Does markup go on materials as well as labour?

Yes, on the whole completed cost of the job: materials, labour and the hidden costs together. Marking up labour but passing materials through at cost means the effort of buying, collecting, storing and guaranteeing those materials earns you nothing.

Why is my margin smaller than my markup?

Because the profit is measured against a bigger number. The markup percentage is measured against your cost; the margin measures the same pounds against the final price, which includes the profit itself. Same money, bigger denominator, smaller percentage.

This guide is general information for UK tradespeople, current to the best of our knowledge in 2026. Rules, rates and thresholds change, and how they apply depends on your specific circumstances. It is not tax, accounting or legal advice. Always confirm your position with HMRC, a qualified accountant or a solicitor before relying on it. TradeDraft accepts no liability for decisions made on the basis of this guide. Questions: hello@tradedraft.co.uk.

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