Markup vs Margin: Why Your 30% Markup Is Only a 23% Margin

Markup vs margin is the pricing mix-up that costs tradies the most without anyone noticing. You add 30% to your costs, think of it as a 30% margin, and keep 23%. Nobody rings to tell you. The job gets done, the invoice gets paid, and the missing money just isn't there at the end of the year.

This guide is for Australian tradies who price their own jobs, from sole traders to small crews. It covers the difference in plain numbers, how to price a job to hit the margin you actually want, how to handle materials, labour, subbies and GST, and what a discount really costs. You can check every example in our free markup vs margin calculator.

What's the difference between markup and margin?

Markup and margin both measure the profit on a job. Whether you say markup vs margin or margin vs markup, the difference is what you compare that profit to.

• Markup is your profit as a percentage of your cost.
• Margin is your profit as a percentage of your sell price.

Take a job that costs you $1,000 and sells for $1,300 ex GST. The profit is $300. Against the $1,000 cost, that's a 30% markup. Against the $1,300 price, it's a 23.1% margin. Same $300, two different percentages.

Neither one is wrong. Trouble starts when you set prices with one and judge your results with the other.

Why is a 30% markup only a 23% margin?

Because the sell price is higher than the cost. Markup divides your profit by the smaller number, so it always looks higher. Margin divides the same profit by the bigger number, so it always looks lower.

You can convert either way with one line of maths:

• Markup to margin: margin = markup ÷ (100 + markup). A 30% markup is 30 ÷ 130 = 23.1%.
• Margin to markup: markup = margin ÷ (100 - margin). A 30% margin needs 30 ÷ 70 = 42.9%.

How much does mixing up markup and margin cost a tradie?

More than one job's worth. Here's an illustrative trade business with $250,000 of job costs a year: materials, subbies and wages.

The owner wants a 30% margin but adds 30% to every job. Turnover comes in at $325,000 and gross profit at $75,000. That's a 23.1% margin.

To keep 30% of the price on those same jobs, turnover would need to be $357,143, with $107,143 in gross profit. The gap is $32,143 a year. Same jobs, same hours, same customers.

Most of that money isn't lost on any one quote. It's a few hundred dollars here and there, every week, for years.

How do you price a job to hit a margin? The divide, don't add rule

To price for a margin, divide your cost by what's left after the margin. We call it the divide, don't add rule, because adding a percentage to your cost gives you a markup, not a margin.

1. Pick the margin you want to keep, say 30%.
2. Take it away from 100. For 30%, that leaves 70, or 0.7.
3. Divide your cost by that number.

Say a hot water system replacement costs you $3,500 ex GST, including the unit, fittings, and labour.

• Add 30%: $3,500 × 1.3 = $4,550. Your margin is 23.1%.
• Divide by 0.7: $3,500 ÷ 0.7 = $5,000. Your margin is 30%.

The difference is $450 on one job. With GST, the customer pays $5,500.

Stick that table on the dash. It's the fastest way to price for a margin without a calculator.

Where does the margin on a job actually come from?

On most jobs, labour earns the bulk of the profit. Materials and subbies earn less than many tradies expect.

Here's an illustrative small bathroom renovation. The $55-an-hour labour cost covers wages plus super, workers' comp, and leave. Use your own figures.

The whole job is a 31.0% markup and a 23.7% margin. Labour earns 63% of the profit.

That changes where you look when margins feel thin. Lifting the materials markup from 20% to 30% on this job adds $600. Lifting the charge-out rate by $10 an hour adds $700, and customers rarely see it line by line. The quoted hours matter too. Two hours you forgot to quote cost you $190.

If you're a sole trader, count your own hours as a cost at what you'd pay someone else to do them. If you don't, your margin looks healthy while you're working for less than an employee.

How much should you mark up materials, labour and subbies?

There's no single right percentage. It depends on your trade, the job size, and how easily a customer can check the price. These rules of thumb hold up.

• Materials: your markup pays for ordering, picking up, returns, wastage and standing behind the part if it fails. Many tradies use a tiered markup, higher on small fittings that take as much running around as big ones, and lower on big-ticket items a customer can look up online. You also pay for materials before the customer pays you, and the cash gap calculator shows how much of your money that ties up.
• Customer-supplied materials: you earn no margin on them, so price the extra time they cost you and limit your warranty to your workmanship.
• Subbies: a markup covers organising them, supervising the work and being responsible for it. It's often lower than your materials markup.
• Labour: your charge-out rate is already a markup on what labour costs you. Check it covers your overheads, including the unpaid hours on quotes and invoices. The admin cost calculator puts a dollar figure on those hours.
• Variations: price extras the same way as the original quote. If you mark up the quote and do the extras at cost, every variation lowers your margin. Our guide to charging for variations covers what to say on site.

What markup should a tradie use?

The right markup covers your overheads and leaves the profit you want. There's no official benchmark, and most percentages quoted online have no source. Work out your own in four steps.

1. Add up your overheads for a year as a percentage of turnover. That's the ute, insurance, phone, software, tools, accountant and anything else that isn't a cost of a specific job.
2. Decide the net profit you want, as a percentage of turnover.
3. Add the two together. That's your target gross margin.
4. Convert it to a markup with the table above, or use the divide, don't add rule.

For example, if overheads take 25% of turnover and you want 10% net profit, you need a 35% gross margin. That's a 53.8% markup on your job costs, or your cost divided by 0.65. Pro Trade United walks through the same method in more detail in its guide to pricing for profit.

The answer changes with the kind of work:

• Service and repair work usually needs a higher margin. Jobs are small, and travel, quoting, and invoicing take up more of each dollar.
• Larger renovation or project work can run on a lower margin per dollar, as long as your costs are tight and you charge for variations.
• Crews need to include every employment cost in the job cost: super, workers comp, leave, and downtime between jobs.

Do you work out markup before or after GST?

Before. If you're registered for GST, work every number ex GST and add GST once, at the end. GST has been 10% since it started on 1 July 2000, so the last step is always the same: multiply by 1.1.

You must register for GST once your turnover reaches $75,000 a year, according to the ATO's GST registration rules. Once registered, you claim back the GST on business purchases as a credit. You need a tax invoice for purchases over $82.50, according to the ATO's guidance on when you can claim a GST credit. So your real cost for a material is the price ex GST.

A common slip is marking up the receipt total, which includes GST, then adding GST again. Take a $110 receipt: $100 plus $10 GST.

• Marked up on $110: $110 × 1.2 = $132, plus GST = $145.20.
• Marked up on $100: $100 × 1.2 = $120, plus GST = $132.

The customer pays $13.20 more than you meant to charge, and your quote is less competitive for no reason.

If you're not registered for GST, it's different. You can't claim the GST back, so it's part of your cost. Mark up the full receipt amount, and don't add GST to your invoice.

How much does a discount really cost you?

Much more than the discount. Take the $5,000 hot water job priced at a 30% margin. The profit is $1,500. Take 10% off, and you charge $4,500, so the profit falls to $1,000. A 10% discount just wiped out a third of your profit.

To keep the same profit after a discount, you need to do more work. Here's how much more.

At a 20% margin, a 10% discount means doing twice as many jobs for the same profit.

A customer who goes quiet after a quote usually hasn't said no. Before you cut the price, follow up the quote. It costs a text message, not a third of your profit.

Markup, margin, hourly or fixed price: which pricing method fits which job?

Most tradies use a mix. Each method suits a different kind of job.

Whichever you use, check the margin before the quote goes out. That's the number your profit and loss report will show.

How does Korda Pro fit in?

Korda Pro doesn't set your prices. You do, using whichever method suits the job. Korda Pro turns that price into money.

• You record the quote as a voice note, and Korda Pro turns it into an itemised quote for you to review and send.
• Quotes that go quiet get followed up automatically.
• Variations you log by voice note land on the final invoice, so extras don't get done at cost.
• Unpaid invoices are chased until they're paid, and everything flows into Xero.

If you'd rather have a price book with default markups built in, job management apps such as ServiceM8, Tradify and Fergus do that. A spreadsheet also works fine for a sole trader with a short list of common jobs. Our comparison pages cover how Korda Pro differs from the main job management apps.

What markup and margin mistakes should you avoid?

• Calling a markup a margin. Say which one you mean, especially to your accountant, your bank or anyone looking at buying the business.
• Marking up the receipt total. If you're registered for GST, mark up the ex-GST cost.
• Leaving your own time out of the cost. Your margin looks great while you're paying yourself out of profit.
• Using last year's supplier prices. Check your price list whenever a supplier raises prices.
• Discounting before following up. A third of your profit is a high price for a reply.
• Doing variations at cost. Mark up extras the same way as the original quote.

Markup vs margin FAQs

The bottom line

Markup is what you add. Margin is what you keep. Pick the margin your business needs, then divide, don't add. Run your next quote through the markup vs margin calculator before it goes out, and make sure the price you set gets followed up and paid.