Buy at 100 and sell at 125: markup is 25%, but margin on price is 20%. The difference matters when pricing many offers. Calling both percentages “margin” can leave the total short of your intended target.
Calculations work only if cost includes the components you need to cover. These examples use estimated full costs and comparable amounts before applicable taxes. Planned job profit is not automatically the business's net income.
Markup starts from cost
Markup percentage = (price − cost) ÷ cost × 100. At €100 cost and €125 price, a €25 difference divided by €100 gives 25%. To derive price from markup, multiply cost by one plus the percentage expressed as a decimal.
At €800 full cost and 25% markup, price is 800 × 1.25 = €1,000. This leaves €200 before any excluded costs. It is readily checked as cost plus uplift.
Margin starts from price
Margin percentage = (price − cost) ÷ price × 100. In that example, 200 ÷ 1,000 = 20%. The numerator is the same but the denominator differs, so markup cannot be used directly as a margin target.
For 25% margin at €800 full cost, price = cost ÷ (1 − margin): 800 ÷ 0.75 = €1,066.67, rounded to cents. Check: €266.67 divided by €1,066.67 is approximately 25%.
Reconstruct full cost before applying percentages
Supply cost can include purchase, transport not charged separately and work needed for the sale. Services can include person-hours, tools, travel and a consistently allocated overhead share.
Marking up material while omitting configuration hours creates misleading apparent margin. If hours already contain overheads, do not add them again. An incorrect cost base matters more than percentage precision.
A discount cuts profit faster than price
At €1,000 price and €800 cost, margin is 20%. A 10% discount reduces price to €900, leaving €100. Planned profit halves and margin falls to about 11.11%. Cost has not fallen with price.
If quantities or services also fall, reconstruct the new cost. Removing an option can remove both revenue and cost; a pure discount removes only revenue. Present these as different decisions.
Why averages mislead
Different lines can have different margins. Do not simply average percentages when amounts differ. Add consistent prices and costs, then divide the difference by total price for overall margin.
Example: a €900 supply costing €800 and a €100 service costing €20 give €1,000 revenue and €820 costs. Overall margin is 18%. An arithmetic average of the two line percentages would not describe the offer.
When formulas are insufficient
Markup percentage is undefined at zero cost; margin percentage is undefined at zero price. A 100% margin target cannot be priced with this formula when cost is positive. Do not conceal these cases as spreadsheet zeros.
For important orders, also check risk, capacity and payment timing with your business advisers. This guide explains mathematics rather than recommending a universal margin. Price must be sustainable and reflect the service's value.
Use the checked price in the document
The client sees commercial prices and terms. Keep cost and margin calculations internally for comparison with actual results. Quoting software helps record items but cannot correct a poorly estimated cost.
Check the percentage backwards
After choosing price, recalculate from the result. At €800 cost and €1,066.67 price, the difference is €266.67. Divide by price for approximately 25%, or by cost for approximately 33.33%. This immediately identifies which indicator you used.
Small percentage differences can arise from rounded cents. Do not manually change price without knowing why. Use a consistent rounding method and check the proposal total. Mathematical precision supports a clear decision but does not replace checking that all necessary costs are included.
Enter prices and discounts in PreventivOk after calculating full cost and margin from your figures. The app is not being presented as automatic profitability analysis. Create your next quote with PreventivOk.