Building & Construction Accounting 101: Margin Vs Markup​

Understanding the difference between margin and markup is essential in pricing strategies, yet it remains a common area of confusion in business. Both concepts deal with how much to charge above the cost of goods sold, but they calculate profit differently:

• Markup refers to the percentage added to the cost to determine the selling price. It’s calculated based on the cost of the item. For example:

• • Example 1
    Item costs $100
    We add 50% (markup)
    Sale price is $150
  • Example 2
    Item costs $100
    We add 100% (markup)
    Sale price is $200

• Margin, on the other hand, is the percentage of the selling price that is profit. For example:

• • Example 1
    Item costs $100
    sells for $150
    Margin is $50 or 33.3%
  • Example 2
    Item costs $100
    Sells for $200
    Margin is $100 or 50%

Misunderstanding or interchanging these concepts can lead to underpricing, which affects profitability. Many businesses and individuals struggle with this distinction, not realising the impact it has on their pricing strategy. Education on this fundamental difference is crucial, as correct application ensures businesses set prices that accurately reflect their desired profitability.​

For a comprehensive understanding of business pricing, refer to our Estimating article.