For trade and service businesses, getting your markup just right means balancing fair pricing with a solid profit margin. A good markup calculator can take the guesswork out of the equation, helping you set prices that cover costs, and stay competitive, profitable, and confident in every quote.
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Generally speaking, your markup is a product’s selling price minus its cost price. However, to factor in sales tax or overheads, the following formula should be used (or, check out our calculator and save yourself from the maths headache)
First, add the cost of materials and any overhead costs. This gives you the total material cost.
Next, add your desired profit margin to the total material cost. This means adding a percentage (profit margin) of the total material cost to itself.
Finally, apply any optional sales tax to the marked-up price. This is done by adding the sales tax percentage of the marked-up price to itself.
It's pretty easy to confuse markup and margin. Although they’re related, they serve different purposes. Markup is the amount added to the cost of a product to set the selling price, expressed as a percentage of the cost. In contrast, margin represents the percentage of the selling price that contributes to profit. Simply put, markup focuses on setting the price, while margin measures how much profit is made from that price.
Markup is the amount added to the cost of a product to determine the selling price. It’s typically expressed as a percentage of the cost.
Margin, specifically gross margin, refers to the percentage of the selling price that represents profit.
For example:
Setting the right markup is essential for covering your costs, staying competitive, and achieving your target profit margin. An accurate markup ensures you’re not leaving money on the table. Regularly reviewing and adjusting your markup rates to reflect changes in input costs and market conditions will help you avoid underpricing.
Markup also affects how customers view your business. High markups can drive customers to competitors, while low markups make your services appear undervalued and will impact your bottom line. By finding the right balance, you set your business up for solid financial growth.
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