Markup vs Margin for Tradespeople: How to Convert Between the Two and Price for Target Profit

Quick Answer: Markup is profit expressed as a percentage of cost; margin is profit expressed as a percentage of selling price. A 25% markup produces a margin of only 20%. To convert: margin = markup ÷ (1 + markup); markup = margin ÷ (1 − margin). Most tradespeople undercharge because they confuse the two — pricing at a 20% "profit" when they mean markup gives them only 16.7% margin, not 20%.

Summary

Markup and margin are not the same number, and confusing them is one of the most common causes of undercharging in the trades. A plasterer who quotes "cost + 20%" and thinks he is making a 20% profit is actually making 16.7p in every £1 of revenue — not 20p. Over a year, on £150,000 turnover, that is a gap of nearly £5,000 in missing profit.

The confusion arises because both are expressed as percentages, and both describe the relationship between cost and price. The difference is the denominator: markup uses cost as the base; margin uses selling price as the base. Since selling price is always higher than cost, the same profit amount represents a larger percentage of cost than it does of selling price.

Understanding the distinction matters for two reasons. First, when you set your target profit, you need to know whether you are thinking in markup or margin — and use the right formula. Second, when clients or accountants talk about gross margin (which is almost always expressed on selling price), you need to translate that into your pricing model. Accountants use margin; tradespeople often instinctively use markup. Neither is wrong, but you must be consistent.

Key Facts

Quick Reference Table — Markup to Margin Conversion

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Markup % Margin % Price per £100 cost
10% 9.1% £110.00
15% 13.0% £115.00
20% 16.7% £120.00
25% 20.0% £125.00
30% 23.1% £130.00
33.3% 25.0% £133.33
40% 28.6% £140.00
50% 33.3% £150.00
67% 40.0% £167.00
100% 50.0% £200.00
150% 60.0% £250.00

Detailed Guidance

The Core Formulas

Markup formula:

Selling price = Cost × (1 + markup%)
Example: Cost = £400, markup = 25% → Selling price = £400 × 1.25 = £500
Profit = £500 − £400 = £100

Margin formula:

Selling price = Cost ÷ (1 − margin%)
Example: Cost = £400, target margin = 25% → Selling price = £400 ÷ (1 − 0.25) = £400 ÷ 0.75 = £533.33
Profit = £533.33 − £400 = £133.33

Converting markup → margin:

margin = markup ÷ (1 + markup)
Example: 25% markup → margin = 0.25 ÷ 1.25 = 0.20 = 20%

Converting margin → markup:

markup = margin ÷ (1 − margin)
Example: 25% target margin → markup = 0.25 ÷ 0.75 = 0.333 = 33.3%

Worked Example 1: Bathroom Refurbishment — Materials Pricing

A plumber buys a bathroom suite for £850 + VAT.

If the plumber's target margin is 25% on all materials:

Charge = £850 ÷ (1 − 0.25) = £850 ÷ 0.75 = £1,133.33

This requires a 33.3% markup, not 25%.

On the invoice, VAT is then added to the total charge (labour + marked-up materials): e.g. £1,133.33 × 1.20 = £1,360 including VAT.

Worked Example 2: Electrical First Fix — Calculating Labour Rate for Target Profit

An electrician has the following cost structure:

Target net profit margin: 25%

Selling price (day rate) = £245 ÷ (1 − 0.25) = £245 ÷ 0.75 = £326.67/day

Rounding to £330/day. At this rate:

If the electrician instead used 25% markup:

Selling price = £245 × 1.25 = £306.25/day
Profit = £61.25
Margin = £61.25 ÷ £306.25 = 20% — below the 25% target

The difference on 200 working days per year: £4,750 in additional profit from pricing correctly.

Worked Example 3: Extension Build — Combined Labour and Materials Quote

A builder is quoting a single-storey extension. Costs are:

Overhead allocation for the project (based on 8-week duration at £500/week): £4,000 Total cost including overhead: £27,700

Target net margin: 20%

Quote price = £27,700 ÷ (1 − 0.20) = £27,700 ÷ 0.80 = £34,625

Round to £34,500 (slightly below for client presentation).

Equivalent markup: £34,500 ÷ £27,700 − 1 = 24.5% markup — not 20%.

If the builder had quoted 20% markup: £27,700 × 1.20 = £33,240. Profit = £5,540. Margin = 16.7%. On a £34k job, that is £1,260 less profit.

Trade Pricing Benchmarks

These are indicative figures for calibrating your own pricing model. Regional rates vary significantly.

Trade Typical materials markup Typical day rate (ex-VAT) Target net margin
Plumber 20–30% £250–£400 20–25%
Electrician 20–30% £260–£380 20–25%
Builder (sole trader) 15–25% £200–£350 18–22%
Plasterer 15–20% £180–£300 18–22%
Tiler 20–30% £200–£320 20–25%
Roofer 15–25% £220–£380 18–22%
Painter/decorator 15–20% £160–£280 18–22%
Kitchen fitter 20–35% £200–£350 20–25%
Carpenter 15–25% £200–£350 18–22%

Pricing for a Target Profit — The Right Mental Model

The most useful mental model for a sole trader is:

  1. Know your minimum viable day rate — the bare minimum to cover your living costs and basic business costs. Work this out once, honestly.
  2. Add your overhead allocation — total annual overheads ÷ billable days per year.
  3. Add your target profit — using the margin formula (not markup) to convert to a selling price.
  4. Apply materials markup — consistently, using the same percentage, calculated on trade price ex-VAT.
  5. Add VAT — only if VAT-registered.

Resist discounting by reducing your margin percentage. If you need to be competitive, reduce cost (source materials cheaper, increase efficiency) rather than reduce margin. A business running at 10% net margin has no buffer for a bad debt, a van repair, or a slow month.

Frequently Asked Questions

Should I use the same markup rate for all materials?

Consistency is more important than optimisation. A single markup rate (e.g. 25% on all materials) is simpler to apply and easier to explain to clients than variable rates. Some tradespeople charge higher markup on small consumables (where the admin cost per item is high) and lower markup on large items (where the client is more likely to notice). A 25% blended rate is a reasonable starting point for most trades.

Do I mark up subcontractor costs?

Yes, if you are organising the works. If you engage a subie and take on the risk, coordination, and responsibility, a 10–20% management margin on subie labour is standard. This is not the same as marking up your own labour — it is the cost of being the responsible contractor.

My accountant talks about gross margin — is that the same as what I calculate?

Gross margin in accounting is usually revenue minus direct costs (labour, materials) divided by revenue. It does not deduct overheads. Net margin deducts overheads. When you quote, you want to recover overheads within the price, so your "net margin" targets above already include overhead recovery. Check with your accountant what they include in "cost of sales" versus "overheads" to ensure you are comparing like for like.

I'm not VAT-registered — does any of this change?

The formulas are the same. The key difference is that you buy materials at trade price (which may include VAT if your supplier charges VAT to non-registered buyers — check your merchant terms) and charge the client the marked-up price with no VAT added. As a non-registered trader, your cost base includes input VAT you cannot reclaim, which increases your cost of materials.

How do I price a job where I'm not sure of the material costs yet?

Use a provisional sum for uncertain material costs. Price the labour at your standard rate, list the materials as a provisional sum (e.g. "materials — provisional sum £1,500 subject to final specification"), and agree with the client that the final invoice will reflect actual material costs plus your agreed markup. This protects you from under-quoting while being transparent with the client.

Regulations & Standards