Markup is simple arithmetic that causes real damage when it gets confused with margin. If you set prices with one and judge results with the other, every item in the price book earns less than you think, and the gap doesn't show up until the year-end numbers.
Markup in plain English
A plumber buys a pressure-reducing valve for $60 and sells it for $150 (example numbers). The $90 difference, divided by the $60 cost, is a 150% markup. Divided by the $150 price instead, it's a 60% gross margin. Same dollars, two percentages, and both are correct. They just answer different questions.
How do you calculate markup?
Metric
Markup
How much is added to cost, as a share of cost.
Markup % = (selling price − cost) ÷ cost × 100
Where the numbers come from: Item cost from your supplier invoices or inventory; selling price from the price book.
To set a price from a markup:
Price from markup
To set a price that hits a target margin, skip markup entirely:
Price from a target margin
Markup vs margin conversion table
| Markup | Gross margin | $100 cost sells for |
|---|---|---|
| 25% | 20.0% | $125 |
| 50% | 33.3% | $150 |
| 75% | 42.9% | $175 |
| 100% | 50.0% | $200 |
| 150% | 60.0% | $250 |
| 200% | 66.7% | $300 |
| 300% | 75.0% | $400 |
The conversions: margin = markup ÷ (1 + markup), and markup = margin ÷ (1 − margin). The calculator below does both in either direction.
| Markup | Margin | |
|---|---|---|
| Divides profit by | Cost | Selling price |
| Range | 0% to any size | Always below 100% |
| Best used for | Setting a price from cost | Budgeting and judging profitability |
| $50 cost, $100 price | 100% | 50% |
| Shows up in | The price book | The P&L and job costing |
A sliding markup example
A flat markup on every part prices cheap parts too low to cover the handling cost and expensive equipment too high to compete. Many shops use a sliding scale instead. The tiers below are an illustration, not a recommendation; build yours from your own overhead and margin targets.
| Part cost (example tiers) | Markup | Gross margin | Example |
|---|---|---|---|
| Under $10 | 300% | 75% | $6 fuse → $24 |
| $10 to $50 | 150% | 60% | $40 capacitor → $100 |
| $50 to $250 | 100% | 50% | $120 motor → $240 |
| $250 to $1,000 | 67% | 40% | $600 coil → $1,000 |
| Over $1,000 | 43% | 30% | $3,000 condenser → $4,290 |
Common mistakes with markup
- Adding margin percentage as markup. Wanting a 40% margin and adding 40% to cost gives a 28.6% margin.
- Marking up an old cost. If the supplier raised the price and your price book still holds last year's cost, your markup is applied to the wrong number.
- Ignoring freight and handling. A part's true cost includes delivery, pickup time and waste.
- Marking up wages for labor. Labor is priced through an hourly rate that already includes overhead and profit, not a markup on the wage.
How do you choose a markup?
Work backwards from what the business needs. Your gross margin target comes from overhead and profit goals; materials are one part of that, alongside labor priced through your hourly rate. Set margin targets by part tier, convert them to markup with the table above, and enter them in the price book. Our plumbing pricing guide walks through overhead recovery and profit from the start.
Markup inside a flat-rate price
In a flat-rate price book, markup only applies to the materials part of each task. Labor is priced through the hourly rate, which already carries overhead and profit. That's why two tasks with the same markup on parts can end up with very different overall margins.
| Task (example) | Labor at $180/hr | Part cost | Part at 150% markup | Price |
|---|---|---|---|---|
| Replace capacitor, 1 hr | $180 | $40 | $100 | $280 |
| Replace igniter, 0.75 hr | $135 | $30 | $75 | $210 |
To find a task's real gross margin, subtract the part cost and the tech's loaded labor cost for the task time from the price, then divide by the price. With an example loaded labor cost of $60 an hour, the capacitor task is ($280 − $40 − $60) ÷ $280 ≈ 64%, and the igniter task is ($210 − $30 − $45) ÷ $210 ≈ 64%.
Why set targets in margin, then price in markup?
Margin is how the profit and loss statement reports profitability, so budgets, bonuses and lender conversations are all in margin terms. Markup is easier to apply to a cost when you build prices. Use each for what it's good at: decide the margin you need, convert it once to a markup per part tier, and check the result in margin on your reports. The mistake is mixing them mid-stream.
How markup shows up in TradesWork
The TradesWork price book shows each item's price, cost and margin side by side, so you can see margin directly rather than converting in your head, and price changes are staged as drafts until you publish them. Receiving purchase orders updates each item's moving average cost, and job costing reports gross margin and materials as a percent of revenue by job type, technician and business unit, so you can check whether the markups in the price book turned into the margin you planned.
