Markup vs Margin: Complete Pricing Guide for Trade Businesses (2026)
Stop confusing markup and margin. The 2026 pricing playbook with formulas, conversion tables, and markup targets by trade so you never give profit away.
Confusing markup and margin is the number one pricing mistake that costs UK trade businesses thousands in lost profit. This guide explains the difference, shows you the correct formulas, and reveals the exact markup/margin percentages successful contractors use to stay profitable in 2026.
Keep going with Profit Margin Benchmarks 2026, Service Business Pricing Mastery, and How to Price Emergency Callouts so every quote, premium, and markup follows the same playbook.
The Critical Difference (That Costs You Money)
🚨 The £10,000 Mistake
A plumber charging "50%" thinks he's making 50% profit. He's actually making 33% profit and losing £10,000 per year because he's confusing markup with margin.
This is the single most expensive pricing mistake in trade businesses. Once you understand the difference, you'll never make it again.
The Simple Definitions
Markup = Profit as percentage of COST
"I paid £100 for materials. I want to make £50 profit. That's 50% markup."
Markup % = (Profit ÷ Cost) × 100
Margin = Profit as percentage of SELLING PRICE
"I charged £150 total. I made £50 profit. That's 33% margin."
Margin % = (Profit ÷ Selling Price) × 100
⚡ Key Insight
50% markup = 33% margin because you're calculating from a different base number. This is why using the same percentage for both kills your profit.
Markup Explained with Real Examples
Markup Formula & Calculation
Markup % = (Selling Price - Cost) ÷ Cost × 100
or
Selling Price = Cost × (1 + Markup %)
Example 1: Boiler Service
- Labour cost to you: £80 (2 hours at £40/hour)
- Parts cost: £20
- Total cost: £100
- Desired markup: 100%
- Selling price = £100 × (1 + 1.00) = £200
- Your profit: £100
Example 2: Bathroom Installation
- Materials: £1,500
- Labour: £2,000 (5 days × £400/day)
- Total cost: £3,500
- Desired markup: 50%
- Selling price = £3,500 × (1 + 0.50) = £5,250
- Your profit: £1,750
Common Markup Percentages Table
| Cost | Markup % | Selling Price | Profit |
|---|---|---|---|
| £100 | 25% | £125 | £25 |
| £100 | 50% | £150 | £50 |
| £100 | 75% | £175 | £75 |
| £100 | 100% | £200 | £100 |
| £100 | 150% | £250 | £150 |
| £100 | 200% | £300 | £200 |
Margin Explained with Real Examples
Margin Formula & Calculation
Margin % = (Selling Price - Cost) ÷ Selling Price × 100
or
Selling Price = Cost ÷ (1 - Margin %)
Same Boiler Service Example
- Total cost: £100
- Desired margin: 50%
- Selling price = £100 ÷ (1 - 0.50) = £200
- Your profit: £100
- Check: £100 profit ÷ £200 selling price = 50% margin ✓
Notice: To achieve 50% margin, you need £200 selling price on £100 cost. That's the same as 100% markup. 50% margin = 100% markup.
Margin Percentages Table
| Cost | Desired Margin % | Required Selling Price | Profit |
|---|---|---|---|
| £100 | 20% | £125 | £25 |
| £100 | 25% | £133 | £33 |
| £100 | 33% | £150 | £50 |
| £100 | 40% | £167 | £67 |
| £100 | 50% | £200 | £100 |
| £100 | 60% | £250 | £150 |
Converting Between Markup & Margin
Conversion Formulas (Memorize These)
Markup → Margin
Margin = Markup ÷ (1 + Markup)
Margin → Markup
Markup = Margin ÷ (1 - Margin)
Quick Conversion Reference Table
| Markup % | ⟷ | Margin % |
|---|---|---|
| 25% | = | 20% |
| 33% | = | 25% |
| 50% | = | 33% |
| 67% | = | 40% |
| 100% | = | 50% |
| 150% | = | 60% |
| 200% | = | 67% |
| 300% | = | 75% |
| 400% | = | 80% |
Pro Tip: Print this table and stick it in your van. Reference it until the conversions become automatic.
The Fatal Pricing Mistake (50% vs 50%)
Real-World Example of This Mistake
Bob runs a plumbing business. His accountant says "you need 50% margin to be profitable". Bob thinks "50% margin = add 50% to my costs". Wrong.
What Bob THINKS he's doing (but isn't):
- Cost: £100
- Add 50%: £100 + £50 = £150
- Price charged: £150
- Actual margin: £50 ÷ £150 = 33% (not 50%)
- Shortfall per job: 17%
What Bob SHOULD do for 50% margin:
- Cost: £100
- Required margin: 50%
- Selling price = £100 ÷ (1 - 0.50) = £200
- Actual margin: £100 ÷ £200 = 50% ✓
Annual Impact of This Mistake
Bob does 200 jobs per year averaging £100 cost each. By using 50% markup instead of 100% markup (for 50% margin):
| Scenario | Price Per Job | Annual Revenue | Annual Profit |
|---|---|---|---|
| Wrong (50% markup) | £150 | £30,000 | £10,000 |
| Correct (100% markup = 50% margin) | £200 | £40,000 | £20,000 |
| Money Lost | -£50 | -£10,000 | -£10,000 |
Bob is working the same hours, doing the same quality work, but making £10,000 less per year because of a pricing formula mistake.
Recommended Markup & Margin by Trade
UK Trade Business Benchmarks (2026)
Based on industry data and successful contractors. These ensure you cover overheads, taxes, and take home a living wage.
| Trade | Recommended Markup | = Margin | Notes |
|---|---|---|---|
| Plumbing | 100-150% | 50-60% | Higher for emergency callouts |
| Electrical | 100-150% | 50-60% | Testing equipment costs justify higher margin |
| HVAC | 80-120% | 45-55% | Equipment-heavy, competitive pricing |
| Cleaning | 200-300% | 67-75% | Low material costs, labor-intensive |
| Handyman | 100-200% | 50-67% | Varies widely by job type |
| Landscaping | 67-100% | 40-50% | Material-heavy, seasonal pricing |
| Carpentry | 80-120% | 45-55% | Custom work justifies premium |
| Painting | 100-150% | 50-60% | Labor-intensive, low material cost |
💡 Context Matters
These are starting points. Adjust based on your location (London vs rural), service level (emergency vs scheduled), warranty offered, and business overheads. Track your actual costs for 3 months, then set markup to achieve desired take-home pay.
Materials vs Labor: Different Markup Strategies
Why Separate Markup for Materials & Labor?
Smart contractors use different markup percentages for materials vs labor because the risks and overhead costs are different.
Materials Markup: 20-50%
Why lower?
- • Customer can price-check materials online
- • Competitive pressure keeps markup modest
- • Large jobs = large material bills = lower % acceptable
- • Covers procurement, delivery, storage, wastage
Labor Markup: 100-200%
Why higher?
- • Covers NI, pension, holidays, sick pay, training
- • Accounts for non-billable time (travel, admin, quotes)
- • Your expertise and speed justify premium
- • Covers van, tools, insurance, certifications
Worked Example: Bathroom Fitting
Costs:
- Suite, tiles, adhesive, grout: £1,500
- Your labor cost (5 days × £200/day): £1,000
- Total cost: £2,500
❌ Wrong Way: Single 50% Markup
- Price = £2,500 × 1.50 = £3,750
- Profit = £1,250
- Margin = 33%
- Problem: Not enough to cover true labor overhead
✅ Right Way: Separate Markup
- Materials: £1,500 × 1.30 (30% markup) = £1,950
- Labor: £1,000 × 2.00 (100% markup) = £2,000
- Total price = £3,950
- Total profit = £1,450
- Overall margin = 37%
- Extra profit vs wrong way: £200 per job
Simple Pricing Calculator Guide
Step-by-Step Pricing Process
Step 1: Calculate True Labor Cost
- • Hours on site (including travel each way)
- • Your hourly cost (not what you want to earn, what it costs you)
- • Example: 3 hours on-site + 1 hour travel × £40/hour = £160 labor cost
Step 2: Add Materials Cost
- • What you'll pay trade supplier (inc VAT if you can't reclaim)
- • Include delivery fee if applicable
- • Add 10% wastage buffer for materials that might break/be wasted
- • Example: £200 materials + £20 delivery + 10% wastage = £242
Step 3: Apply Markup
- • Materials: £242 × 1.30 (30% markup) = £315
- • Labor: £160 × 2.00 (100% markup) = £320
- • Quote price: £635
Step 4: Sense Check
- • Does this match market rate for similar work?
- • Would you be happy doing this job for this price?
- • Does it cover your costs plus profit you need?
- • If no to any: adjust markup OR walk away from job
💼 Toolfy Auto-Calculates This
Set your default markup percentages once in Toolfy. Every quote automatically applies your markup to materials and labor separately. No mental math, no mistakes, no underpricing.
Try Free for 14 DaysBreak-Even Analysis & Minimum Pricing
Understanding Your Break-Even Margin
Your break-even margin is the MINIMUM margin needed to cover all business expenses before you make any personal income.
Example: Solo Plumber Annual Costs
| Van insurance & running costs | £5,000 |
| Tools & equipment | £2,000 |
| Public liability insurance | £600 |
| Gas Safe registration & renewal | £400 |
| Accountant | £800 |
| Phone, software, misc | £1,200 |
| Total Annual Overheads | £10,000 |
Break-Even Calculation
If you do 250 jobs per year, your overhead per job is:
£10,000 ÷ 250 = £40 per job
If average job costs you £100, minimum selling price to break even:
£100 (cost) + £40 (overhead) = £140
That's 40% margin just to cover expenses. Add desired profit on top.
⚠️ Never Price Below Break-Even
Pricing below break-even to "win the work" means you're literally paying customers to let you work for them. Calculate your break-even margin once per year. Never quote below it. No exceptions.
Common Pricing Mistakes to Avoid
1. Forgetting Non-Billable Time
Mistake: You work 40 hours per week but only charge for 25 billable hours. The other 15 hours (quotes, admin, travel, shopping for materials) aren't priced in.
Fix: Your hourly rate must cover ALL hours worked. If 37.5% time is non-billable, increase hourly rate by 60% to compensate.
2. Not Accounting for Wastage
Mistake: Quote £200 materials, but you break tiles, over-order copper, spill paint. Real cost: £230. You eat the £30.
Fix: Add 10-15% wastage buffer to materials quotes. Factor it into your costs before markup.
3. Matching Competitor Prices Blindly
Mistake: "Bob charges £150 for this so I will too." You don't know Bob's costs, overhead, or if he's even profitable.
Fix: Calculate YOUR costs. Set YOUR prices. If Bob's cheaper, let him have those customers. Race to the bottom = bankruptcy race.
4. Discounting Labor to Win Work
Mistake: Customer says too expensive. You say "okay, I'll do it for £50 less" by cutting your labor charge.
Fix: Labor is WHERE YOU MAKE PROFIT. Never discount labor. If anything, offer cheaper materials option or reduce scope. Protect your margin.
5. Not Reviewing Pricing Annually
Mistake: Using the same markup % you set 3 years ago. Costs have risen (fuel, insurance, materials) but your prices haven't.
Fix: Review every January. Check if current margin still covers costs + desired profit. Adjust upward as needed.
6. Using Margin When You Mean Markup (and Vice Versa)
Mistake: THE ENTIRE POINT OF THIS GUIDE. Confusing the two costs you thousands annually.
Fix: Bookmark this guide. Reference the conversion table until it's automatic. Use software that calculates both correctly.
Build a pricing command center in Toolfy
- •Quote templates, emergency premiums, and deposits all in one library
- •Real-time job costing shows margin before you send the quote
- •Scenario calculators feed straight into invoices and payment plans
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