Mar 2025 The difference between markup & margin, and why you need to master this
I have spoken with hundreds of Landscapers over the years, and two quoting terms that are often misunderstood are Markup and Margin.
Some Landscapers assume these two terms mean the same thing, however, there is a significant difference between the two! And knowing the difference between them can be a key factor in your business either making a profit or a loss.
Simple Explanation
Margin and Markup are both business terms related to calculating profit, but they represent different ways of looking at the same transaction:
- Markup represents the percentage added to the cost price (of material/equip/labour) to reach the selling price.
- Margin represents the percentage of the selling price that is profit.
Let’s look at an example:
Markup
We add a 30% Markup to a material that costs $100.
To work out Markup we place the product cost price ($100) in a calculator then x 30% = $30.
Then we add $100 and $30 together. As the example below shows:
Quoted Price to Client: $130.00
Markup (30%) which is: $30.00
Product Cost: $100.00
Markup = 30%
Margin
Now let’s work out the Margin (or Gross Profit Margin). Here we look at the same material as above. The profit is the same amount: $30.
Quoted Price to Client: $130.00
Product Cost: $100.00
Gross Profit: $30.00
Margin = 23.8%
To work out Margin we place ($30.00) in a calculator and divide by the selling price ($130.00) = 23.8%
So the percentage represents the relationship between Gross Profit and Selling Price, (not Profit and Cost Price like in Markup),
Tip – Margin is always a smaller percentage than Markup in the same sale or quote.
A misconception by some Landscapers
Some landscapers think if they are marking up 20% then that is the profit they are making, but as a profit percentage it’s less: in fact only 16.67%. The amount of money they make is still $20 but as a percentage the 2 differ.
Why do Landscapers need to know this?
Failure to understand the difference between Markup and Margin can result in incorrect price setting. If your pricing is too low, it can result in lost profits. What I see often is Markup (on materials/labour/subbies) covering the costs of a job, leaving a profit too small to cover the running costs in a business.
I always explain the differences of Markup and Margin when I am discussing quoting and analysing a P&L Statement for my clients. I want them to understand what their business Gross Profit Margin needs to be to cover Overheads and leave the Net Profit they are desiring.
I will always show a client what Profit Margins they need, both Gross Profit and Net Profit Margins, then we plan the quoting (applying the right Markup to product, labour and subcontractors).
For a Garden Maintenance Business – I also explain the expected Gross Profit Margin needed in a Maintenance business. This approach helps us set labour charge out rates and Markups on materials.
If a project ends up with less profit margin it’s not always the Markup that is wrong
If your project profit ends up lower, it may not be your Markup that is wrong or not high enough, but your team may have taken longer to build the job than estimated. So, tracking and reviewing a project is essential with all your jobs.
I have written about this topic because it is an important understanding that is needed when quoting and making a decent profit from the projects you install. If you are unsure about your Markup versus your Margin, read through this article again and then apply it to your quotes and do some calculations.
Cheers to more profit in your business!