Markup vs margin: price materials without confusing the two
Worked examples showing why a 25% markup is not a 25% profit margin.
On The Tools HQ editorial team · Updated 2026-10-09
The difference is the denominator
Markup expresses gross profit as a proportion of your cost. Margin expresses gross profit as a proportion of the selling price. The same job therefore has different markup and margin percentages. This distinction matters when a supplier discount, a materials allowance or a target profit figure is being turned into a quote.
What a 25% markup does
If materials cost £100, a 25% markup adds £25 and gives a selling price of £125. Gross profit is £25. Divide that profit by the £125 selling price and the margin is 20%. The calculation is selling price = cost × (1 + markup). A 25% markup is therefore not a 25% margin, even though both descriptions can sound like adding a quarter.
What a 25% margin requires
For a 25% gross margin on a £100 cost, divide £100 by 0.75. The selling price is £133.33 when rounded to pennies, with gross profit of approximately £33.33. The calculation is selling price = cost ÷ (1 − margin). As the target margin approaches 100%, the required price grows sharply. A 100% margin on a positive cost is not a valid target.
Decide what belongs in your cost
Use a consistent cost basis. Include direct costs you intend this item to recover, such as delivery or an agreed wastage allowance. Avoid adding the same cost both here and elsewhere in the quote. Labour and overhead recovery still need to be priced: a margin on materials is not the net profit of the entire business.
Keep VAT separate from the percentage
Compare cost and selling price on the same tax basis. The calculator applies an optional tax percentage after the selling price calculation; it does not establish whether your business should charge or reclaim VAT. If tax treatment is unclear, settle that with your accountant before relying on the number in a customer quote.
Use the number in a quote you can explain
Use the markup and materials-margin calculator to check the result before entering it into your quoting app. Review the item cost again when supplier prices change. Keep the agreed customer scope clear, and make sure a revised cost does not silently change an already accepted price. A correct percentage is useful only when it is applied to the right cost and a clearly agreed job.
Open the markup and margin calculator
Sources and date checked (3)
Supplier documentation. Product imagery belongs to the respective supplier.
- Business Victoria: margin and markupChecked 2026-10-09
- HMRC: VAT ratesChecked 2026-10-09
- business.gov.au: pricing strategyChecked 2026-10-09
