Guide
No, they're not the same, and the gap gets worse the higher the number. Here are both formulas, a full conversion table, and the divisor trick to use when you're quoting.
A 20% markup is not a 20% margin. It's 16.7%. Markup is calculated on cost. Margin is calculated on price. Because price is always bigger than cost (assuming you're not selling at a loss), the same dollar of profit is a bigger percentage of the smaller number and a smaller percentage of the bigger number.
Here are both conversions, so you can stop guessing:
Plug in 20% markup: 0.20 ÷ 1.20 = 0.167, or 16.7% margin. That's the whole confusion in one line.
Say a job costs you $100 in materials and labour. You mark it up 20%, so you charge $120. Your profit is $20. Now ask: $20 is what percentage of $120, the price? It's 16.7%, not 20%. The 20% only holds true if you measure the $20 against the $100 cost, which is what "markup" means by definition.
Margin always measures profit against the selling price. Markup always measures profit against the cost. Same $20 of profit, two different denominators, two different percentages. The bigger the markup, the wider the gap gets, because the denominators pull further apart.
Use this table to translate between the two without doing the arithmetic mid-quote:
| Markup on cost | Resulting margin |
|---|---|
| 20% | 16.7% |
| 30% | 23.1% |
| 40% | 28.6% |
| 50% | 33.3% |
| 100% | 50.0% |
Notice the pattern: even a 100% markup, which sounds huge, only gets you to a 50% margin. A lot of tradespeople think doubling the price doubles their margin. It doesn't. It caps it at half.
This is the direction that catches people out most, because it's the one that matters when you set a target margin and need to know what to charge. If you want a specific margin, you need a bigger markup number than you'd expect:
| Target margin | Required markup on cost |
|---|---|
| 20% | 25.0% |
| 30% | 42.9% |
| 40% | 66.7% |
| 50% | 100.0% |
So if your business plan says "we need a 30% margin to cover overheads and make a profit," and you mark jobs up 30% on cost, you're not hitting 30% margin. You're hitting 23.1%. You need a 42.9% markup to actually land on 30% margin. That's a meaningful shortfall if you're budgeting against margin targets and pricing against markup habits.
Forget markup arithmetic entirely when you're quoting and just want to hit a margin target. Use this instead:
Price = Cost ÷ (1 − Target Margin)
Worked example: your job costs $340 in parts and labour, and you want a 30% margin. Price = 340 ÷ (1 − 0.30) = 340 ÷ 0.70 = $485.71. Check it: profit is 485.71 − 340 = $145.71. As a percentage of the $485.71 price, that's exactly 30%. No markup conversion needed, no guessing, and no risk of quoting a 30% markup and quietly landing on 23.1% margin instead.
This is the same logic used in our markup vs margin calculator if you'd rather not do it by hand every time you quote.
A plumber quotes a bathroom re-pipe. Total job cost (materials, labour, van time) is $2,000. He applies his usual 25% markup, thinking that gives him a 25% margin to cover overheads and profit.
He thought he had 25% margin sitting in that job. He actually has 20%. If his overhead structure was built assuming 25% margin per job, every job like this is quietly underfunding the business by that five-point gap. Run enough jobs like this and it adds up to real money, which is the point of the next section.
Take a business doing $250,000 a year in revenue, pricing jobs on a 25% markup basis but believing they're running a 25% margin.
Actual margin at 25% markup is 20% (25 ÷ 125 = 20%). The five-percentage-point gap between the believed 25% and actual 20% margin, applied to $250,000 of revenue, is:
0.05 × $250,000 = $12,500 a year of margin that isn't where the owner thinks it is. That's not money lost outright — the jobs are still profitable — but it's a $12,500 hole in whatever budget, wage bill, or reinvestment plan was built on the assumption that margin equalled the markup percentage. That's the size of the gap that quietly wrecks cash flow forecasts, van replacement funds, and "we'll take on an apprentice next year" plans.
Markup is easier to calculate on the fly because you already know your cost and just add a percentage. Margin is the number that actually tells you how the business performs, because it's the one your accountant, your bank, and your break-even maths all use. If you're checking whether a job or the whole business is actually covering its overheads, run the numbers through a job profitability calculator or check your break-even point using margin, not markup. Markup is a pricing habit. Margin is a business fact.
The safest approach: decide your target margin first, based on what actually covers your overheads and leaves a profit. Then use the divisor formula, price = cost ÷ (1 − margin), to work out what to charge. Leave markup as a mental shortcut only, and always convert it before you rely on it for anything that matters, like whether payroll clears at the end of the month.
The Small Business Operations Kit ($19) turns guides like this one into fill-in-once worksheets: rate card, quoting sheet, job costing, payment terms and follow-up templates. Built by the same people who write these guides.