Margin and markup are not the same number
Margin is your profit as a share of what the client pays. Markup is your profit as a share of what the subcontractor charges. On the same job the markup is always the bigger figure, so a firm that adds 20% to a subcontractor's price keeps a margin of only 16.7%.
A worked example
A fit-out job with three trades sent out. The client pays for each part, each subcontractor charges for theirs, and the difference is yours to cover your own costs and profit.
| Trade | Client pays | Subcontractor | Profit | Margin | Markup |
|---|---|---|---|---|---|
| Electrical | £12,000 | £9,000 | £3,000 | 25% | 33.3% |
| Ceilings | £8,000 | £6,400 | £1,600 | 20% | 25% |
| Flooring | £5,000 | £4,100 | £900 | 18% | 22% |
| Whole job | £25,000 | £19,500 | £5,500 | 22% | 28.2% |
The markup to add for the margin you want
To keep a set margin, divide the subcontractor's price by one minus the margin. These are worked out by the calculator above.
| Margin you keep | Markup to add | On a £10,000 subcontract, charge the client |
|---|---|---|
| 10% | 11.1% | £11,111.12 |
| 15% | 17.6% | £11,764.71 |
| 20% | 25% | £12,500 |
| 25% | 33.3% | £13,333.34 |
| 30% | 42.9% | £14,285.72 |
| 35% | 53.8% | £15,384.62 |
| 40% | 66.7% | £16,666.67 |
Questions
What is the difference between margin and markup?
Margin is profit divided by the price the client pays. Markup is profit divided by what the work costs you. A 25% markup gives a 20% margin.
How do I work out the margin on subcontracted work?
Take what the client pays for that part of the job, subtract what the subcontractor charges, and divide the answer by what the client pays. Do it trade by trade, because one trade priced too tight can hide inside a job that looks fine in total.
Does the calculator include VAT?
No. Use figures excluding VAT on both sides, so the margin is on the money the business keeps.