Why the same percentage gives two different numbers
Markup and margin sound like the same idea wearing two names. They are not, and the gap between them is exactly the size of the profit a lot of trade businesses quietly lose without noticing. Markup is profit expressed as a percentage of cost. Margin is profit expressed as a percentage of the sell price. Same dollar figure, two different denominators, and because the sell price is always bigger than the cost, margin on a given job is always a smaller percentage than markup on that same job.
Work it through with round numbers. Cost price is $100. Apply a 30% markup: profit is 30% of $100, which is $30, so the sell price is $130. Now check what margin that actually represents. Margin is profit divided by sell price, not profit divided by cost, so it's $30 divided by $130, which comes out to 23.1%, not 30%. A 30% markup on a $100 cost is a 23.1% margin. If what you actually wanted was a genuine 30% margin, the sell price has to be higher again: profit has to equal 30% of the sell price, which works out to a sell price of $142.86, not $130. That's the other direction of the same arithmetic, and it's why margin-based pricing always produces a bigger sell price than markup-based pricing at the same headline percentage.
The quoting error this creates
This is more than a maths curiosity. It's one of the most common quoting errors in a business that doesn't run its numbers through software. Someone sets a target ("I want to run a 30% margin on jobs") and then, because markup is the easier calculation to do in your head on a ute dashboard, applies a 30% markup instead. Every job quoted that way looks like it's hitting the target and isn't. The gap doesn't show up on any individual invoice. It shows up at the end of the financial year, when turnover looks healthy and the bank balance doesn't match what a 30% margin should have left behind, because the business was never actually running one.
The error compounds because it's silent. A pricing mistake that's obviously wrong gets caught and fixed. A pricing mistake that's off by a consistent six or seven percentage points, on every job, looks like normal variation (a slow month, a supplier price rise, more callbacks than usual), right up until someone actually reconciles cost against revenue and finds the shortfall was built into the pricing method from the start, not the season.
Keep it ex-GST
Run this on the ex-GST cost price and the ex-GST sell price. Markup and margin are profitability measures, not tax measures, and mixing GST into the calculation just muddies both. Once you've settled on your ex-GST sell price here, add GST on top separately using our GST calculator. That keeps the two calculations clean and stops GST from quietly distorting a margin figure that was never meant to include it.
Quoting on markup, reporting on margin
A business can quote every job on markup and still be lying to itself about margin, not through dishonesty, just through habit. Quoting on markup is fast: cost plus a percentage, done, easy to do in your head. Reporting almost always runs on margin instead, because that's how profitability actually gets measured against revenue in a set of accounts or a bank statement. If everyone in the business quotes on a 30% markup, but the owner talks about "running a 30% margin" when they mean the same number, the business is reporting a target it was never actually hitting. That mismatch, not fraud and not bad luck, is one of the most common reasons a trade business with plenty of work still finishes the year short of cash.
A materials markup that survives a supplier price rise
A flat dollar markup on materials looks fine until your supplier lifts prices and your margin on that line quietly shrinks, because a fixed dollar amount is a shrinking percentage on a bigger cost. Pricing materials on a consistent percentage markup instead protects the margin when costs move, since the dollar profit rises with the cost rather than staying fixed while the cost climbs past it. It's worth building a small buffer into a materials markup specifically for this, a few points above what the bare margin maths says you need, because supplier pricing on trade materials moves more often than most quotes get revisited. A quote that's accurate the day it's written and stale a month later when the invoice actually lands is a quiet way to lose money on jobs that looked profitable when they were priced.
Margin on labour is a different conversation to margin on materials
Labour and materials behave differently enough that pricing them off the same margin target usually isn't the right call. Materials carry supplier risk that labour doesn't: price rises, stock issues, freight delays. Labour carries a cost that's mostly fixed regardless of how the job goes, wages, super, insurance, whether the job runs long or short. Plenty of trade businesses run a leaner margin on materials, treating them closer to a pass-through cost with a modest markup, and a heavier margin on labour, where the real profit in a job actually lives. If you're not sure what an hour of labour genuinely costs before you mark it up, our hourly rate calculator is the place to start, since margin on labour only means something once the real cost per hour underneath it is right. Run both parts of a quote through this calculator separately rather than blending them into one number, and it's usually a lot clearer where a job's profit is actually coming from, and where it's thin.
What a discount actually costs
A discount comes straight off profit, not off revenue, and the two are nowhere near the same size. Say a job is priced at $1,000 with $700 in cost, a $300 profit, which is a 30% margin. Knock 10% off the price and the new sell price is $900, but the cost hasn't moved, so profit is now $200. That's not a 10% cut to profit. It's a 33% cut, because the whole $100 discount came straight out of the $300 that was profit. The bigger the underlying margin, the smaller a given discount's bite on profit. The thinner the margin, the more dangerous every discount becomes, and on a job already priced close to cost, a seemingly modest discount can wipe the profit out completely or tip the job into a loss. Before offering one, it's worth running the actual numbers rather than assuming "10% off" costs the business 10%.
Setting a floor
A floor is the lowest margin you'll accept on a job before you'd rather not do it at all, and having one, in writing, stops a slow week from talking you into a job that actively loses money. Without a floor, the decision to discount or shave a quote gets made job by job, under pressure, usually by whoever's talking to the customer at the time. With one, it's a business rule instead of a negotiation in the moment. The floor doesn't have to be the same figure for every job type. A floor for materials-heavy work can reasonably sit lower than a floor for labour-heavy work, for the reasons above, but it does need to be a number someone actually checks a quote against, not a vague sense of "we shouldn't go too low." Run a quote through this calculator before it goes out, and a floor stops being a policy nobody follows and starts being something built into how every job is priced. Once the ex-GST numbers are settled, add GST back on with our GST calculator before the quote goes to the customer.
Where this fits with the rest of the admin
None of this matters much if you're quoting three jobs a year off the back of an envelope. It matters a great deal once you're quoting every week, because the same small pricing error repeats itself on every job and the annual cost scales with volume. That's exactly the kind of thing quoting and invoicing software calculates automatically instead of by hand on every job. See what we build under business systems. It's also worth checking your own pricing page states clearly whether the figures on it are markup-based or margin-based, particularly if a customer is comparing your quote against a competitor's using a different convention; our pricing page shows how Delta itself prices, and our web design work covers getting that kind of clarity onto your own site before a customer ever has to ask.