Markup and margin are not the same number, and confusing them is why many tradies quietly undercharge on every job. Markup is the percentage you add to your cost; margin is the percentage of the final price you keep as profit. A 30 percent markup is only a 23 percent margin. To actually earn a 30 percent margin you need a 43 percent markup.
If you run an electrical, plumbing, mechanical or building business and you price jobs by adding a set percentage to your costs, there is a good chance you are leaving real money on the table on every quote. I am Mina Baselyous, a CPA and Chartered Tax Advisor, and this guide shows you the difference with worked examples, so you can price jobs that actually hit the margin you think you are charging.
Markup vs margin: the difference that costs tradies money
Markup is measured against your cost; margin is measured against your selling price. Take the same figures as the base and the two percentages are always different, because the denominator is different. Markup divides profit by cost, margin divides profit by price. Since price is bigger than cost, the margin percentage is always lower than the markup percentage.
The formulas are simple. For a job that costs you $1,000 and sells for $1,400: the markup is profit divided by cost, 400 divided by 1,000, which is 40 percent. The margin is profit divided by price, 400 divided by 1,400, which is 28.6 percent. Same job, same dollars, two very different percentages. The danger is adding a 40 percent markup while believing you are banking a 40 percent margin.
Worked example: an electrician pricing a switchboard upgrade
Say an electrician quotes a switchboard upgrade with direct costs of $1,500 in materials and $800 in subcontract labour, so $2,300 all up. He wants a 30 percent gross margin, so he adds 30 percent and quotes $2,990. He thinks he has a 30 percent margin. He does not. His actual margin is the $690 profit divided by the $2,990 price, which is 23 percent.
To genuinely earn a 30 percent margin, the price has to be cost divided by one minus the margin: $2,300 divided by 0.70, which is $3,285. That is $295 more on this one job, and it is pure profit, because the costs do not change. An electrician who runs 150 to 200 jobs like this a year is handing back somewhere between $44,000 and $59,000 of profit, just from using markup thinking when he means margin.
Worked example: a plumber marking up parts
Parts are where the markup trap bites hardest. A plumber buys a hot water unit for $400 and adds a 50 percent markup, charging $600. That feels healthy, but the margin on that part is only $200 divided by $600, which is 33 percent. If the business is built on the assumption that parts carry a 50 percent margin, the real recovery is a third less than planned, and across thousands of parts a year the gap is enormous.
To actually make a 50 percent margin on that unit, the plumber needs to double the cost, a 100 percent markup, and charge $800. In our experience working with trade businesses, this single confusion, markup versus margin on parts, is the most common reason a busy plumbing or electrical business is turning over good money but the bank account never reflects it.
The markup you need to hit the margin you want
Here is the conversion every trade business should pin to the wall. To turn a target margin into the markup you actually have to add, divide the margin by one minus the margin. These are the numbers that matter when you are building a quote.
| Margin you want | Markup you must add |
|---|---|
| 20% | 25% |
| 25% | 33% |
| 30% | 43% |
| 35% | 54% |
| 40% | 67% |
| 50% | 100% |
Read it the other way and the undercharging becomes obvious. A tradie adding a flat 25 percent to everything is earning a 20 percent margin, not 25. Adding 50 percent gives a 33 percent margin. Adding 100 percent gives 50 percent. If you have been quoting on markup and reporting margin, your real profit has always been lower than the number in your head.
Not sure what margin your jobs are actually making?
We work with trade and service businesses to set a charge-out rate and a pricing model that protects your margin on every job, not just the big ones. Book a consultation with Mina to find out where your pricing really sits.
Book a ConsultationYour labour rate has to carry overhead and margin too
Pricing is not just about marking up parts. Your charge-out rate on labour has to recover the tradesperson’s wage, the overhead that keeps the business running, and a margin on top. A mechanic who pays a technician $45 an hour but charges customers $55 an hour is not making a 22 percent margin, because the $55 still has to cover the workshop rent, tools, insurance, admin wages, superannuation and software before any profit is left.
The right way to set a charge-out rate is to start with the true cost of an hour of labour, including every on-cost and a fair share of overhead, then add the markup that delivers your target margin on top of that fully loaded cost. Most trade businesses that feel busy but broke have a charge-out rate that recovers wages and overhead but leaves no real margin, so every extra job just buys them more work, not more profit. Working out your fixed costs and break-even point is the first step to setting a rate that actually works.
How to build pricing that protects your margin
Fixing this is not complicated, but it has to be deliberate. The trade businesses that make real money treat pricing as a system, not a habit, and they measure margin after the job, not just quote it before. A few practical moves make the biggest difference.
- Quote on margin, not markup. Decide the margin you need, then use the conversion table to find the markup to add. Build it into your quoting template so it happens automatically.
- Load your true cost. Include every on-cost on labour, superannuation, leave, insurance, vehicle, tools, before you add margin. The cost you mark up must be the real cost, not just the wage.
- Price parts and labour separately. They often carry different margins. Lumping them together hides where you are making money and where you are losing it.
- Review actual margin after the job. Compare what you quoted to what the job actually cost. This is where you find the jobs that quietly lose money.
- Hold your price. A small, confident price rise flows almost entirely to profit. Discounting to win work does the opposite, and it is the fastest way to destroy a thin margin.
How Pinnacle helps trade businesses price for profit
Knowing your margin is one thing; building a business around it is another. We help trade and service business owners work out their true cost of labour, set a charge-out rate that carries overhead and margin, and build a pricing model that holds up across every job, not just the big ones. According to the ATO, you can also compare your figures against others in your trade using the small business benchmarks (ATO, 2026), which show the typical cost and profit ratios for your industry.
As Mina Baselyous (CPA, CTA, Registered Tax Agent) puts it, most tradies do not have a revenue problem, they have a pricing problem, and the fix is usually a few points of margin recovered on work they are already doing. If you want to understand the difference between gross and net margin first, start with our guide to profit margins explained, then look at how pricing feeds your overall Virtual CFO numbers.
Frequently Asked Questions
What is the difference between markup and margin?
Markup is the percentage you add to your cost, measured against the cost. Margin is the percentage of the selling price you keep as profit, measured against the price. Because price is higher than cost, the margin percentage is always lower than the markup percentage for the same job.
What markup do I need for a 30 percent margin?
You need a 43 percent markup to earn a 30 percent margin. The formula is margin divided by one minus the margin, so 0.30 divided by 0.70 gives 0.43. As a quick guide, 20 percent margin needs 25 percent markup, 40 percent margin needs 67 percent markup, and 50 percent margin needs 100 percent markup.
Why do tradies undercharge when pricing jobs?
The most common reason is confusing markup with margin. A tradie who adds 30 percent to cost thinks they are making a 30 percent margin, but they are actually making 23 percent. Across hundreds of jobs a year, that gap can cost tens of thousands of dollars in lost profit on work already being done.
How do I set a charge-out rate for labour?
Start with the true cost of an hour of labour, including wages, superannuation, leave, insurance, vehicle and a share of overhead. Then add the markup that delivers your target margin on top of that fully loaded cost. A rate that only covers wages and overhead leaves no profit, so every extra job just buys more work.
What is a good profit margin for a trade business?
Trades commonly run gross margins of around 30 to 50 percent and net margins of about 10 to 20 percent, though it varies by trade and how you price labour versus parts. Compare your figures against the ATO small business benchmarks for your industry, and focus on whether your margin is stable and deliberate rather than accidental.
General Advice Disclaimer: The information in this article is general in nature and does not constitute personal financial, tax, or legal advice. It has been prepared without taking into account your personal objectives, financial situation, or needs. Before acting on anything in this article, seek advice from a registered tax adviser or CPA. Liability limited by a scheme approved under Professional Standards Legislation.
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