What is the difference between markup and margin?
Background
When creating estimates in Procore, you can include markup or margin. Many businesses mistakenly use margin and markup interchangeably, but they are not the same. This misunderstanding can lead to pricing errors and inaccurate profit projections. Knowing the difference is key to effective pricing and profitability.
Answer
Markup
- Shows the difference between the cost of materials or services and the sales price you would charge for them.
- Based on cost.
- Use markup when determining selling price from known job costs or answering the question, “How much more are we charging above our costs?”
- Calculation: Sales Price (Markups) = Subtotal Item Cost x ( 1 + Markup %)
Margin
- Represents the profit made on a job as a percentage of the sales price.
- Based on revenue.
- Use margin to understand profit relative to revenue and assess business health, or answering the question, “What percent of the revenue is profit after job costs?”
- Calculation: Sales Price (Margins) = Subtotal Item Cost ÷ (1 - Margin %)
Tip
Always double-check that your sales pricing strategy aligns with your desired margin, not just the markup.