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You need to have accurate financials to successfully run your roofing business. Knowing the difference between margin vs. markup helps you avoid pricing errors that could hurt your bottom line.
Margin and markup have different meanings and aren’t interchangeable. For your business to thrive, you need to understand the definitions of margin vs. markup and the difference between them.
You don’t want to offer services that are overpriced or underpriced. A pricing mismatch in either direction could hurt your profits.
In this guide, we’ll go over the following topics:
- Defining margin vs. markup
- How to calculate margin vs. markup
- When to use margin vs. markup
Let’s dive in.
Your Guide to Understanding Markup vs. Margin
Defining Markup vs. Margin
To know when to use margin vs. markup, you first need to understand what these terms mean.
While margin and markup have the same inputs (cost and sales), they aren’t the same.
Markup is the amount you charge a client in addition to the cost of your goods or services sold. A margin is the amount you keep out of total revenue after accounting for the cost of goods or services sold.
The margin and markup can be the same dollar amount, but the percentages will differ significantly.
For example, if you sell a roofing service for $100, and your cost is $25, the markup and margin are both $75. However, the markup is 300%, and the margin is 75%.
That’s why you should calculate the markup and margin as percentages to understand the full value.
How to Calculate Margin vs. Markup
To find both your margin and markup, you’ll need to know the following inputs:
- Sales
- Cost of the services/goods sold
Here’s how to calculate margin vs. markup using these formulas:
- Markup formula: (Sales - Cost of services sold) / Cost of services sold = Markup
- Margin formula: (Sales - Cost of services sold) / Sales = Margin
To determine a markup rate based on your desired margin, use the following formula:
- Markup percentage = Desired margin / cost of services sold
You can multiply the markup percentage by the cost price to get your sales price. For example, if you want a margin of 30% and your cost is $100, your sales price should be around $142.
Once you know the markup, you can calculate the margin and vice versa. If it’s easier, some online sites offer free margin vs. markup calculators. You can also keep a markup vs. margin conversion cheat sheet handy to save time.
As your margin grows, the markup increases at an even greater rate. Take a look at the markup vs. margin conversion chart below to see:
You can also use the above chart as a starting point for your conversion cheat sheet.
When to Use Margin vs. Markup
For calculating business profits, using margin instead of markup is best. Margin will also give you a good view of your service's profitability. However, markup is helpful to look at when determining your pricing.
See the Difference Between Margin vs. Markup
Accurate financials are a big part of running a successful roofing business. You can avoid pricing errors when you know how and when to use markup vs. margin.
Use these formulas or the cheat sheet above to help you manually calculate margin vs. markup. But if you want to automate the calculations for your business, use SumoQuote.
SumoQuote can work with margin or markup and automatically input the right amount based on your desired outcome. See it in action yourself and sign up for a free demo today!
