This is the single most expensive arithmetic error in the trades, and it is expensive precisely because it is small enough to go unnoticed on any individual job.
The difference
Markup is profit as a percentage of what it cost you.
Margin is profit as a percentage of what you charged.
Same dollars, different denominator, very different number.
A job that costs $100 and sells for $150 has a 50% markup and a 33.3% margin. Both describe the same $50.
Where the money goes
A plumber decides they want a 30% margin. They take a job costing $1,000 and add 30%, invoicing $1,300.
The margin on $1,300 is $300 divided by $1,300, which is 23%. They are seven points short of what they intended, on every job, permanently.
To actually get 30%, you divide rather than add:
$1,000 divided by (1 minus 0.30) = $1,000 divided by 0.70 = $1,428.57
The gap between $1,300 and $1,429 is $129 on one job. On a hundred jobs a year it is $12,900, which for many small plumbing companies is the difference between a good year and a hard one.
The rule: to hit a target margin, divide the cost by (1 minus the margin). Never add the percentage.
Conversion table
| Markup | Margin | Price on $1,000 of cost |
|---|---|---|
| 20% | 16.7% | $1,200 |
| 30% | 23.1% | $1,300 |
| 40% | 28.6% | $1,400 |
| 50% | 33.3% | $1,500 |
| 67% | 40.0% | $1,670 |
| 100% | 50.0% | $2,000 |
| 150% | 60.0% | $2,500 |
The one worth memorising: a 50% markup is a 33% margin. If you take one thing from this, take that.
Which should you use?
Markup to build the price. It is applied to a cost you know, which is how pricing actually works in the field.
Margin to judge the business. It is comparable across jobs of different sizes and it is what an accountant, a lender or a buyer will ask about.
Most plumbing companies should price in markup and report in margin, and the failure is using the words interchangeably in between.
The second error: marking up the wrong cost
Even correctly applied, a markup on the wrong cost gives the wrong price.
If your cost is the part plus the plumber's wage, your markup is paying for the van, the insurance, the phone, the unbilled drive time and the office before any of it is profit. A 50% markup on that basis is frequently a loss.
The cost you mark up should be materials plus loaded labour plus direct job costs, with overhead applied separately. That is covered in plumbing job costing.
Different markups for different things
A single markup across everything is simple and leaves money on the table.
| Category | Typical approach | Why |
|---|---|---|
| Cheap parts | Higher markup | Handling a $4 fitting costs nearly as much as a $400 one |
| Expensive equipment | Lower markup | The percentage would be indefensible, and customers can price-check it |
| Labour | Priced from loaded cost | It is not a part you are reselling |
| Subcontracted work | Modest markup | You carry the risk and the coordination, which is real |
Run your own figures through the markup and margin calculator, and see plumbing parts markup for how to set the sliding scale.
The arithmetic is universal. The percentages are illustrative, and the right markup depends on your market, your costs and what you are worth locally.
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