What is the difference between markup and margin?

Markup is profit as a percentage of cost. Margin is profit as a percentage of revenue. Both formulas measure the same dollar profit but divide it by different denominators, which is why a 25% markup is not the same as a 25% margin.

What is the formula to convert margin to markup?

Markup = Margin ÷ (1 − Margin). For example, a 25% target margin requires a 33.3% markup: 0.25 ÷ 0.75 = 0.333. To convert markup back to margin, use Margin = Markup ÷ (1 + Markup).

Does a 25% markup equal a 25% margin?

No. A 25% markup produces a 20% margin. A 25% margin requires a 33.3% markup. A contractor who quotes a 25% markup while intending a 25% margin loses 5 percentage points of profit on every billable hour for the life of the contract.

How much money does confusing markup and margin cost on a federal contract?

On a single full-time position over a 5-year federal contract (10,400 billable hours), confusing a 25% markup with a 25% margin costs approximately $39,728 in lost profit. On a 5-person contract, the loss scales to roughly $198,000 over the contract term.

Should contractors use markup or margin for federal bids?

Use markup when building a bid from cost up to price or when communicating with subcontractors. Use margin when evaluating overall business profitability or submitting federal cost proposals. Most federal evaluation methodology assumes margin, not markup.

What is the conversion table for common margin targets?

Target margin to required markup: 10% margin = 11.1% markup, 15% = 17.6%, 20% = 25%, 25% = 33.3%, 30% = 42.9%, 35% = 53.8%, 40% = 66.7%, 50% = 100%. Required markup grows faster than target margin above 25%.

Pricing

Markup vs Margin: The Pricing Mistake That Costs Small Contractors Contracts

A 25% markup is not the same as a 25% margin. Learn the conversion formula and see exactly how much money the confusion costs over a 5-year contract.

~2 min readPublished June 25, 2026

Every contractor uses both markup and margin. Few use them correctly. Most pick one of the two terms, plug a percentage into their pricing, and assume the math works out the same either way. It doesn't. The two numbers measure profit against different baselines — markup measures profit against cost, margin measures profit against revenue — and treating them as interchangeable is one of the most expensive habits in small contracting.

This article shows the difference, the conversion formula, and the actual dollar cost of getting it wrong on a federal service contract.

1.The Core Difference

Markup is profit expressed as a percentage of cost.

Markup % = (Selling Price − Cost) ÷ Cost

Margin is profit expressed as a percentage of revenue (selling price).

Margin % = (Selling Price − Cost) ÷ Selling Price

Both formulas measure the same dollar profit. They divide it by different denominators. That difference compounds quickly.¹

2.The Same Numbers, Two Perspectives

Take a labor rate that costs you $100/hour to deliver, billed to the client at $125/hour.

Profit per hour: $125 − $100 = $25
Markup calculation: $25 ÷ $100 (cost) = 25% markup
Margin calculation: $25 ÷ $125 (revenue) = 20% margin

Same job. Same numbers. The seller can honestly describe this contract as either "25% markup" or "20% margin." Both are true. Neither equals the other.

This is where contractors lose money. They quote a 25% markup thinking it's a 25% margin. The math doesn't support that assumption.²

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1.The Core Difference

2.The Same Numbers, Two Perspectives

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