Price from cost,
the right way
Work out the markup on a cost, or the price a markup gives, and see the margin it really earns.
25%
£20.00 profit on a £100.00 price. The same profit is a 20% profit margin.
What the item or job costs you, before VAT.
What you charge, before VAT.
Profit
£20.00
Profit margin
20%
- Cost
- £80.00
- Selling price
- £100.00
- Profit
- £20.00
- Profit margin
- 20%
- Markup
- 25%
- Price with 20% VAT, if you charge it
- £120.00
Work on prices before VAT. VAT you charge is not your income and VAT you can reclaim is not a cost, so including either makes the margin look wrong.
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<iframe
src="https://taptax.co.uk/tax-calculator/markup/embed"
title="Markup calculator"
width="100%"
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></iframe>
<p style="font-size:12px">
<a href="https://taptax.co.uk/tax-calculator/markup">Markup calculator by TapTax</a>
</p>- Markup
- The amount added to cost to reach the selling price, as a percentage of the cost. A 50% markup on a £10 cost gives a £15 price.
How to work out markup
Divide the profit by the cost. A part that costs £80 and sells for £100 carries a £20 markup, which is 25% of the cost. To price from a markup, multiply the cost by one plus the markup: a 25% markup on £80 is £80 × 1.25 = £100.
What your markup really earns
Markup flatters. A 25% markup is a 20% margin, and a 100% markup, doubling the cost, is a 50% margin. If a target is set as a margin, pricing it as a markup undercharges every time. The table shows the margin each markup gives:
| Markup | Margin it gives | Price on £100 of cost |
|---|---|---|
| 10% | 9.1% | £110.00 |
| 20% | 16.7% | £120.00 |
| 25% | 20% | £125.00 |
| 30% | 23.1% | £130.00 |
| 40% | 28.6% | £140.00 |
| 50% | 33.3% | £150.00 |
Marking up materials on a job
Trades often buy materials and pass them on with a markup for the time spent sourcing, collecting and guaranteeing them. Show them on the invoice as you agreed with the customer: as a line with the markup built into the price, or at cost with the labour priced to cover it. If you are VAT registered, charge VAT on the full selling price, and if you work under CIS, materials you supply are not subject to the CIS deduction, which the CIS calculator separates out.
- Markup is profit divided by the cost.
- Price from a markup: cost times (1 plus the markup).
- A 25% markup is only a 20% margin; a 100% markup is a 50% margin.
- Work markups on costs and prices before VAT.
Related calculators
Frequently asked questions
How do I calculate markup?
Take the cost away from the selling price to get the profit, then divide the profit by the cost and multiply by 100. A £100 price on an £80 cost is a 25% markup.
How do I add a markup to a cost?
Multiply the cost by one plus the markup as a decimal. A 40% markup on £50 is £50 times 1.4, a £70 price.
What margin does a markup give?
Divide the markup by one plus the markup. A 25% markup gives a 20% margin, a 50% markup gives 33.3% and a 100% markup gives 50%.
Is a 100% markup the same as doubling the cost?
Yes. A 100% markup adds the whole cost again, so the price is twice the cost and the margin is 50%.
Should markup include VAT?
No. Mark up the cost before VAT, then add VAT to the selling price if you are VAT registered.
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