OwnMargin guide
Markup vs margin for service businesses
Markup and margin both describe the space between cost and price, but they answer different questions. Mixing them up can leave a service underpriced even when the percentage looks healthy.
Markup starts with cost
Markup is calculated as (price − cost) ÷ cost. If a service costs €100 and you add a 25% markup, the price is €125. It tells you how much you added to the cost.
Margin starts with price
Margin is (price − cost) ÷ price. The same €125 price and €100 cost produces a 20% margin, not 25%. Margin is useful when you want to know what share of the selling price remains after a cost.
Which number belongs in your decision?
Use markup when you start with a known cost and need to build a price. Use margin when you start with a target share of revenue. For a service business, include owner pay, productive capacity and overhead before choosing either percentage.
Do not hide labour in the percentage
A material markup cannot pay for unpaid preparation, admin or delivery time. First calculate what the service must recover per productive hour, then use markup or margin to check the price and direct costs.
Questions this guide answers
What is the difference between markup and margin?
Markup is calculated as (price − cost) ÷ cost. If a service costs €100 and you add a 25% markup, the price is €125. It tells you how much you added to the cost.
Which measure helps me set a service price?
Margin is (price − cost) ÷ price. The same €125 price and €100 cost produces a 20% margin, not 25%. Margin is useful when you want to know what share of the selling price remains after a cost.
Why can a large markup still produce a weak margin?
Use markup when you start with a known cost and need to build a price. Use margin when you start with a target share of revenue. For a service business, include owner pay, productive capacity and overhead before choosing either percentage.