Margin vs markup: why adding 30% is not a 30% margin

If a service costs $100 and you add 30%, its price is $130. Profit is $30, but the margin is $30 divided by $130: 23.08%.

Two different denominators

Markup = profit ÷ cost. Margin = profit ÷ revenue. To achieve a modeled 30% margin before fees, a $100 cost requires a price of $100 ÷ 0.70 = $142.86.

Payment fees change the result

If a processor takes 3% of revenue plus a $0.50 fixed fee, a $100 cost and a 30% target margin produce a price of ($100 + $0.50) ÷ (1 − 0.30 − 0.03) = $150.00. Profit after the entered fees is $45, exactly 30% of that revenue.

Make sure cost is complete

The result only reflects the costs you enter. Include labor, direct expenses, allocated overhead and any contingency allowance. Do not confuse money available in your bank account with profit: unpaid invoices and upcoming expenses affect cash differently.

Know the limits

The formula does not decide customer willingness to pay, calculate sales taxes or guarantee actual profitability. A target margin and a percentage fee must total less than 100% for the formula to produce a valid price. Use realistic assumptions and review completed jobs.

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