Markup vs margin: why 50 percent can mean two different prices
Markup is what you add on top of your cost. Margin is the share of the selling price you keep. Put a 50 percent markup on a $100 part and it sells for $150, which keeps 33 percent. Put a 50 percent margin on the same part and it sells for $200, which keeps 50.
Both are correct. They answer two different questions, and most pricing software will happily take either one. The problem shows up when the owner says “we run 50 on parts” meaning one thing, and the box the number went into means the other. Nobody gets an error. The prices come out a quarter low and the margin a third short, on every part, on every job.
Two words, two different bottoms of the fraction
Both numbers start from the same dollars. A part costs $100, it sells for $150, and there is $50 in between. What changes is what you divide that $50 by.
Divide it by the cost and you get markup: $50 over $100, so 50 percent. Divide it by the price and you get margin: $50 over $150, so 33 percent. Our free markup and margin calculator runs that conversion both directions, so you can see what any markup keeps as margin before it ends up in your book.
That is the whole difference. It sounds like a technicality until you notice which one your books use. Your P&L reports gross margin, a share of revenue. So if the prices were built with a 50 percent markup, the P&L can never show 50 percent on those parts, however well the crew works. It will show 33 and somebody will go looking for a leak that is really just arithmetic. That line is worth reading properly before anyone goes hunting.
Four boxes, four prices, same part
Most pricing software offers more than one way to mark something up. ServiceTitan’s dynamic pricing rules, for example, let you set materials and equipment by gross margin, percent markup, dollar markup, or multiplier, and ServiceTitan’s own help article gives the example that settles the argument: a $100 cost at a 30 percent gross margin prices at $142.86. The same $100 at a 30 percent markup prices at $130. Same 30, a $12.86 difference on one part.
All four types are legitimate. Gross margin suits an owner who thinks in “what do I keep.” Multipliers suit a shop that grew up on a supply-house price sheet. The risk is a mismatch between the type in the box and the type in the owner’s head, and that mismatch is invisible, because the price on the screen still looks like a normal price.
The conversion, so you can check any number
Two formulas cover all of it.
Going from markup to margin, margin = markup ÷ (1 + markup). A 50 percent markup is 0.5 ÷ 1.5, which keeps 33 percent.
Going back the other way, markup = margin ÷ (1 - margin). Keeping 40 percent takes 0.4 ÷ 0.6, a 67 percent markup.
A multiplier is just markup written another way. Subtract one and you have the markup: 2.0x is a 100 percent markup. Divide one by the multiplier and subtract that from one and you have the margin: 2.0x keeps 50 percent.
| If you want to keep this margin | You need this markup | Or this multiplier |
|---|---|---|
| 25% | 33% | 1.33x |
| 33% | 50% | 1.5x |
| 40% | 67% | 1.67x |
| 50% | 100% | 2.0x |
| 60% | 150% | 2.5x |
| 75% | 300% | 4.0x |
Read the fourth row twice. Keeping half of every dollar takes a 100 percent markup.
What a real multiplier table actually keeps
Here is a real material table from a ServiceTitan account we worked in, set up as multipliers by cost band:
| Part cost | Multiplier | Markup | Margin kept |
|---|---|---|---|
| $0 to $5 | 6.5x | 550% | 85% |
| $5.01 to $20 | 5.5x | 450% | 82% |
| $20.01 to $30 | 4.5x | 350% | 78% |
| $30.01 to $50 | 4.0x | 300% | 75% |
| $50.01 to $100 | 3.5x | 250% | 71% |
| $100.01 to $200 | 2.5x | 150% | 60% |
| $200.01 and up | 2.0x | 100% | 50% |
The left two columns are what was in the account. The right two are the same table translated.
Nothing about this table is broken. Steep on cheap parts and gentler on expensive ones is exactly how a tiered table is supposed to work, since a multiplier that makes sense on a five dollar fitting would price a two thousand dollar coil out of the market. That shape is covered in the dynamic pricing guide.
What the translation gives an owner is a straight answer to “what do we keep on parts?” For this table there is no single answer. It runs from 85 percent on the small stuff down to 50 on anything over $200, and on most jobs the expensive parts carry most of the dollars. Whether 50 on the top band is right is the owner’s call. Knowing it is 50, rather than assuming it matches the 85 on a fitting, is the part that has to come first.
Where it hides in a book
Three places, in the order we run into them.
The box type itself. Somebody set the rule up years ago, typed the owner’s “50,” and picked percent markup from the dropdown because it was the first one.
Equipment riding on the material rules. In ServiceTitan there is a switch to use the same markup rules for equipment as for materials. Handy, and worth a deliberate look, because a band built for fittings is now pricing condensers.
Parts that were never marked up at all. A margin conversation assumes every part carries a markup in the first place. The ones sitting at or near cost do not, and they drag the blended number down no matter which box type is chosen.
How to check yours this week
- Find the markup setup. In ServiceTitan it lives in the markup step of each dynamic pricing rule, under Pricebook, Pricing Builder. Other software keeps it in a similar pricing settings screen.
- Write down the type and the number for every cost band, for materials and for equipment.
- Translate each band to margin with the formula above or the table.
- Compare it to the number you say out loud when someone asks what you make on parts.
If the two match, you are done in twenty minutes. If they do not, you now know which box to change and by how much, and the decision on the number stays yours.
Labor works the same way, for what it is worth. Our free Loaded Labor Rate Calculator turns a target profit into a rate by dividing your true cost by one minus the target. It does not multiply the cost by one plus it, because multiplying would hand you a markup while the label on the box says margin. The full cost ladder behind that rate is in how to calculate your loaded labor rate.
A markup table decides what a part sells for. The book decides whether that part ever reaches the estimate at all, linked to the right service with the right hours next to it. Building that system is the work we do, and The Present-Don’t-Configure Method™ is how the pieces fit. If you would rather see where your own book stands first, the free Pricebook Health Audit reads your export and shows you.
FAQ
What is the difference between markup and margin?
Markup is measured against your cost: it is how much you add on top of what you paid. Margin is measured against the selling price: it is the share of what the customer paid that you keep. Because they divide by different numbers, the same percentage never means the same thing. A $100 part with a 50 percent markup sells for $150, and the $50 you keep is 33 percent of that price. The same part at a 50 percent margin sells for $200, and you keep $100, which is half.
How do you convert markup to margin?
Margin equals markup divided by one plus the markup. A 50 percent markup is 0.5 divided by 1.5, so 33 percent margin. To go the other way, markup equals margin divided by one minus the margin. A 40 percent margin is 0.4 divided by 0.6, so a 67 percent markup. A multiplier is the same thing written differently: a 2.0x multiplier is a 100 percent markup and a 50 percent margin, and a 3.0x multiplier is a 200 percent markup and a 67 percent margin.
Which markup type should I use in my pricing software?
The one that matches how you already talk about the number. ServiceTitan, for example, lets a dynamic pricing rule mark up materials and equipment by gross margin, percent markup, dollar markup, or multiplier. All four work. The trouble only starts when the owner thinks in margin and the box is set to percent markup, or the other way round, because then every price is built on a number nobody actually chose. Pick the type deliberately, then write down what margin each cost band really keeps.