Margin and markup: how to use them in pricing
Margin is calculated on the selling price; markup is calculated on cost. The same percentage produces different prices.
Markup on cost
With a full cost of €20 and a 25% markup, the price is 20 × 1.25 = €25. The €5 difference is 25% of cost. Markup (%) = (price − cost) ÷ cost × 100.
Margin on price
In the same transaction, that €5 is 20% of the €25 price. Margin (%) = (price − cost) ÷ price × 100. A 25% markup equals a 20% margin when there are no other charges.
Calculating and rounding
For a 25% margin on a €20 cost, calculate 20 ÷ (1 − 0.25) = €26.666…, approximately €26.67. If you publish €27, calculate again: (27 − 20) ÷ 27 × 100 = 25.93%. Rounding changes the margin.
What the cost includes
Include materials, time, pay and the share of fixed expenses. PrecioClaro includes target pay in the cost and calculates an additional margin: do not subtract that pay twice. The examples and free calculator exclude taxes and payment fees. The kit supports those settings; check your actual charging structure.
Before changing prices, check the included costs, distinguish margin from markup and review the amount remaining at the final price. No percentage guarantees monthly profitability.