What Is Markup Vs Margin? Definition & Guide
Quick Definition
Markup and margin are two different ways to express the same profit on a countertop job, and confusing them is one of the most common (and expensive) financial mistakes in fabrication. Markup is the percentage added to your cost to reach the selling price. Margin is the percentage of the selling price that is profit. A 50% markup produces a 33.3% margin - not a 50% margin. Getting these numbers confused can mean the difference between a profitable shop and one that's slowly losing money on every job.
TL;DR
- Markup = (Selling Price - Cost) / Cost x 100
- Margin = (Selling Price - Cost) / Selling Price x 100
- A 50% markup equals a 33.3% margin - these are NOT the same number
- Many fabrication shop owners think they're making 40% margin when they're actually making 28.6% (because they're calculating markup, not margin)
- Target margins for healthy countertop shops: 25-35% net on material, 45-60% gross on labor
- Getting this wrong by even 5 percentage points can cost a mid-size shop $30,000-$50,000 annually in underpriced work
- SlabWise job costing displays both markup and margin on every quote so you always know your real numbers
The Math That Most Fabricators Get Wrong
Here's a scenario that plays out in fabrication shops every day:
A shop owner buys a granite slab for $1,000. He wants to "make 40%." So he calculates: $1,000 x 0.40 = $400. He prices the slab at $1,400.
He thinks he's earning a 40% margin. He's not. He's earning a 40% markup but only a 28.6% margin.
- Markup: ($1,400 - $1,000) / $1,000 = 40%
- Margin: ($1,400 - $1,000) / $1,400 = 28.6%
The $400 profit is the same either way. But the percentage describes a different relationship. Markup is relative to cost. Margin is relative to selling price.
Why does this matter? Because when your accountant says you need a 35% margin to cover overhead and stay profitable, and you apply a 35% markup instead, you're actually earning a 25.9% margin - nearly 10 points short of the target.
Markup vs. Margin: The Formulas
Markup Formula
Markup % = (Selling Price - Cost) / Cost x 100
Markup tells you how much you've added to your cost. It answers: "How much more am I charging compared to what I paid?"
Margin Formula
Margin % = (Selling Price - Cost) / Selling Price x 100
Margin tells you what portion of revenue is profit. It answers: "What percentage of every dollar collected is profit?"
Conversion Between Markup and Margin
Margin = Markup / (1 + Markup) Markup = Margin / (1 - Margin)
The Conversion Table Every Fabricator Needs
| Markup % | Margin % | On a $1,000 Cost |
|---|---|---|
| 20% | 16.7% | Sell for $1,200 - profit $200 |
| 25% | 20.0% | Sell for $1,250 - profit $250 |
| 30% | 23.1% | Sell for $1,300 - profit $300 |
| 35% | 25.9% | Sell for $1,350 - profit $350 |
| 40% | 28.6% | Sell for $1,400 - profit $400 |
| 45% | 31.0% | Sell for $1,450 - profit $450 |
| 50% | 33.3% | Sell for $1,500 - profit $500 |
| 60% | 37.5% | Sell for $1,600 - profit $600 |
| 75% | 42.9% | Sell for $1,750 - profit $750 |
| 100% | 50.0% | Sell for $2,000 - profit $1,000 |
Notice that you need a 100% markup to achieve a 50% margin. Many shop owners who think they're earning 50% margins are actually applying 50% markups and earning 33% margins. That's a 17-point gap that adds up fast across hundreds of jobs per year.
Why This Matters for Countertop Fabrication
Scenario: The Shop That Thought It Was Profitable
Dave runs a fabrication shop doing $1.2M in annual revenue. His accountant told him he needs a 35% gross margin to cover overhead and make a profit. Dave prices every job at cost plus 35%.
Dave's actual margin: 25.9% (because he's applying 35% as a markup, not a margin).
The difference: 35% margin on $1.2M = $420,000 in gross profit. 25.9% margin on $1.2M = $310,800 in gross profit.
Dave is $109,200 short every year. He's busy, his shop is full, but he can't figure out why he's not more profitable. The answer is a math error in how he calculates his prices.
What Dave Should Have Done
To achieve a 35% margin, Dave needs to calculate:
Selling Price = Cost / (1 - Margin %) = Cost / (1 - 0.35) = Cost / 0.65
On a $1,000 cost item: $1,000 / 0.65 = $1,538 selling price (a 53.8% markup)
Not $1,000 x 1.35 = $1,350 (which is only a 35% markup producing a 25.9% margin).
Typical Margins in Countertop Fabrication
| Component | Healthy Gross Margin Range |
|---|---|
| Material (slab) | 25-40% |
| Fabrication labor | 50-65% |
| Installation labor | 45-60% |
| Edge profiles (premium) | 55-70% |
| Sink cutouts | 60-75% |
| Backsplash | 40-55% |
| Overall job margin | 30-45% |
| Net profit (after all overhead) | 8-15% |
These are margin percentages, not markups. A 40% material margin means you sell a $1,000-cost slab for $1,667 (67% markup). A 40% material markup means you sell it for $1,400 (28.6% margin). The distinction is crucial.
How Markup and Margin Affect Pricing Decisions
Bidding Trade Work
When a GC asks for your "best price" and you want to earn at least a 25% margin, the math is:
Minimum price = Total cost / 0.75
If the job costs $3,000: $3,000 / 0.75 = $4,000 minimum selling price.
If you mistakenly calculate $3,000 x 1.25 = $3,750 (a 25% markup), your actual margin is only 20%. Over a year of trade work, that 5-point difference adds up to thousands in lost profit.
Setting Sqft Rates
When you build your sqft rate from costs, make sure you're targeting a margin percentage, not accidentally using a markup percentage. If your costs work out to $42/sqft and you need a 35% margin:
Sqft rate = $42 / (1 - 0.35) = $42 / 0.65 = $64.62/sqft
Not $42 x 1.35 = $56.70/sqft (which only yields a 25.9% margin).
Evaluating Discounts
When a customer asks for a 10% discount, the impact on your margin is larger than the impact on your markup.
Starting point: $5,000 selling price, $3,250 cost, 35% margin. After 10% discount: $4,500 selling price, $3,250 cost, 27.8% margin.
That 10% discount wiped out 7.2 margin points - over 20% of your profit on the job.
Getting Your Numbers Right
Step 1: Decide Whether You Think in Markup or Margin
Pick one and be consistent. Most accountants and business advisors think in margin. Most shop floor workers think in markup. It doesn't matter which you use, as long as everyone in your shop speaks the same language.
Step 2: Post the Conversion Table
Print the markup-to-margin conversion table and put it on the wall next to where quotes are prepared. This eliminates mental math errors.
Step 3: Use Software That Shows Both
Quoting and job costing software should display both markup percentage and margin percentage for every quote. If your current system only shows one, you're flying partially blind.
Step 4: Review Monthly
Compare your target margins against actual margins on completed jobs. If there's a gap, find out whether it's a pricing error (markup vs. margin confusion) or a cost control issue.
Frequently Asked Questions
What is the difference between markup and margin?
Markup is the percentage added to cost to reach selling price. Margin is the percentage of selling price that is profit. A 50% markup equals a 33.3% margin - they are different calculations on the same profit amount.
Why do people confuse markup and margin?
Because both use percentages and both describe profitability. Without specifying the base (cost for markup, selling price for margin), the numbers look interchangeable - but they're not.
Which should fabrication shops use - markup or margin?
Most financial professionals recommend thinking in margin because it directly shows what percentage of revenue is profit. However, markup is more intuitive for pricing calculations. The key is knowing which one you're using and not mixing them up.
What's a good profit margin for a countertop fabrication shop?
Healthy gross margins (before overhead) range from 30-45% on overall job revenue. Net profit margins (after all expenses) typically range from 8-15% for well-run shops.
How do I convert markup to margin?
Margin = Markup / (1 + Markup). Example: 50% markup = 0.50 / 1.50 = 0.333 = 33.3% margin.
How do I convert margin to markup?
Markup = Margin / (1 - Margin). Example: 35% margin = 0.35 / 0.65 = 0.538 = 53.8% markup.
How much money can the markup/margin mistake cost a shop?
A mid-size shop doing $1M in revenue that confuses a 35% target margin with a 35% markup loses approximately $90,000-$110,000 in annual gross profit. That's often the difference between profitability and breaking even.
Does my quoting software account for this difference?
It depends on the software. Some systems display only markup. Others show only margin. The best systems (like SlabWise) display both on every quote so you always know your true profitability.
Should I use different margins for material vs. labor?
Yes. Labor typically carries higher margins (50-65%) than material (25-40%) because labor is harder to source and scale, and customers are less able to comparison-shop on labor rates.
How do discounts affect my margin vs. markup?
A 10% discount off selling price reduces your margin by more than 10 points. On a 35% margin job, a 10% discount drops the margin to 27.8% - a 20.6% reduction in actual profit.
What margin should I target for trade vs. retail work?
Trade work typically operates at 25-35% margins due to competitive pressure and volume commitments. Retail work should target 35-45% margins because it involves more sales effort and carries no volume guarantee.
How often should I review my margins?
Monthly at minimum. Review completed jobs against quoted margins, and investigate any jobs where actual margin fell below target.
Stop Guessing Your Margins
Every quote should show you exactly how much you're making - in both markup and margin. SlabWise's job costing engine calculates both figures automatically on every quote and completed job, so you never confuse the two and never underprice your work again.
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Sources
- Natural Stone Institute - Fabrication Business Financial Standards
- Kitchen & Bath Business - "Margin Management in Countertop Shops" (2024)
- ISFA - Profitability Benchmarking for Fabricators
- Stone World Magazine - "The Markup vs. Margin Trap" (2024)
- Small Business Administration - Pricing and Profit Margin Fundamentals
- Countertop Fabricators Alliance - Financial Health Metrics