QUOTEHARBOR GUIDE

Profit Margin vs Markup: Formula & Worked Example

Margin and markup describe the same difference between price and cost using different denominators. Confusing them can leave less room for profit than you intended. QuoteHarbor uses a target profit margin on the cost basis you enter.

The two formulas

Margin = (price − cost) ÷ price × 100. Margin expresses the difference as a percentage of the selling price.

Markup = (price − cost) ÷ cost × 100. Markup expresses the difference as a percentage of cost. Neither number by itself tells you whether you included every expense.

Why a 25% markup is not a 25% margin

If a job costs $100 and you add a 25% markup, the price is $125. The $25 difference is 20% of $125, so the margin is 20%. To target a 25% margin on that same $100 cost, divide $100 by 0.75: the price is approximately $133.33. That corresponds to about a 33.33% markup.

Calculate a price from target margin

Use price = cost ÷ (1 − margin as a decimal). For a $440 cost basis and 20% margin, divide $440 by 0.80 to get $550. QuoteHarbor includes your overhead allowance in that cost basis before applying the margin. Its displayed margin remains an estimate based on your inputs, not a business-wide accounting result.

Discounts reduce the actual margin

If you discount that $550 quote by $55, revenue before tax becomes $495. After the unchanged $440 cost basis, the estimated difference is $55: about 11.11% of $495. Check the actual-margin display after applying discounts, and review any below-cost warning before sending the proposal.

Keep tax and deposits separate

The calculator excludes collected tax from profit. A deposit changes when money is requested, not the total project price or the estimated profit. Use your own applicable tax rate and agreed payment terms. Zero-cost examples need special care: markup is undefined when its cost denominator is zero.