Is a 20% markup the same as a 20% margin?

No. A 20% markup on £100 of cost gives a selling price of £120 and £20 of profit. That £20 is 16.7% of the £120, so the margin is 16.7%. A 20% margin needs a 25% markup.

How do I work out markup?

Take your selling price, subtract your cost, then divide the profit by your cost. Multiply by 100 for a percentage. Cost £980, sell £1,176: profit £196, divided by £980, is 20%.

How do I work out margin?

Divide the profit by the selling price instead of the cost. Using the same job, £196 divided by £1,176 is 16.7%.

How much should I mark up materials?

There is no right figure that suits every job. Add up what handling the materials really costs you in time, waste, returns and cash tied up, then choose a markup that covers it and still leaves the margin you want. The reverse sum in this guide shows how.

Do I mark up materials before or after VAT?

If you are VAT registered, before: work out your markup on the price you paid excluding VAT, then add VAT on top of your selling price. If you are not VAT registered, the VAT you paid is part of your cost, so mark up the full amount.

PRACTICAL GUIDES

Markup vs margin: why adding 20% to materials does not give you 20% profit

The difference between markup and margin, a worked materials job, a conversion table and the reverse sum.

By Tea Break Tools

Published 11 November 2026 · Last updated 11 November 2026 · 5 min read

General information, not tax or legal advice. Rules change. Check GOV.UK and ask your accountant.

Adding 20% to your materials gives you a 16.7% margin, not 20%. That is because markup is worked out on your cost and margin is worked out on your selling price. The selling price is bigger, so the same profit is a smaller percentage of it. To get a 20% margin you need a 25% markup.

The two formulas in plain words

Markup is your profit as a share of what the materials cost you.
Margin is your profit as a share of what you charge the customer.

As sums:

Markup % = profit ÷ cost × 100
Margin % = profit ÷ selling price × 100
Profit = selling price − cost

Same profit, different bottom line. That is the whole difference.

A worked job: herringbone LVT in a lounge

A fitter buys the materials for one room. These are the prices paid, before VAT. The figures are made up to show the method.

Item	Cost
LVT, 32 m² at £24.50	£784.00
Adhesive	£96.00
Smoothing compound	£68.00
Trims and fixings	£32.00
Materials cost	£980.00

Now add a 20% markup:

Markup in £: £980 × 20% = £196.00
Selling price: £980 + £196 = £1,176.00
Profit: £1,176 − £980 = £196.00
Margin: £196 ÷ £1,176 × 100 = 16.7%

If you thought you were making 20% on the selling price, that would be £235.20. You are making £196.00. The gap is £39.20 on one room.

Markup to margin: conversion table

Margin is always lower than markup. Each figure is rounded to one decimal place:

Markup	Margin it gives
10%	9.1%
15%	13.0%
20%	16.7%
25%	20.0%
30%	23.1%
40%	28.6%
50%	33.3%
100%	50.0%

The sum behind it: margin % = markup ÷ (100 + markup) × 100. At a 100% markup you double the cost, so half of the selling price is profit.

The reverse sum: what markup do I need?

Start from the margin you want. Then:

Markup % = target margin ÷ (100 − target margin) × 100

Two examples, both on the £980 materials bill:

Target margin 20%. 20 ÷ 80 × 100 = 25% markup. Selling price £980 × 1.25 = £1,225.00. Profit £245.00, and £245 ÷ £1,225 = 20.0%.
Target margin 30%. 30 ÷ 70 × 100 = 42.9% markup. Selling price £980 ÷ 0.7 = £1,400.00. Profit £420.00, and £420 ÷ £1,400 = 30.0%.

Why trades mark up materials at all

Materials are not free for you to handle, even when you charge the customer what you paid. Reasons to add something:

Time to source and collect. Ringing round, driving to the merchant, queuing, loading and unloading. That is unpaid time.
Waste and offcuts. You buy more than the room measures, and the offcuts are yours to pay for.
Breakages and damage. A cracked tile or a damaged pack of boards on site comes out of your pocket.
Returns. Taking back what was not used costs a trip, and some merchants charge to take it.
Cash tied up. You pay the merchant before the customer pays you. Money out is money you cannot use elsewhere.
Warranty call-backs. If something you supplied fails, you may be the one who goes back.

We have no data on what trades add, so we are not going to quote a typical figure. Weigh up your own list: how much time materials take, how much you lose to waste and returns, how long customers take to pay, and the margin you need after your labour and overheads.

Where VAT fits

VAT is not part of your profit. Where it goes in the sum depends on whether you are registered.

If you are VAT registered, work your markup on the price before VAT, then add VAT on top of your selling price. On the lounge job that means VAT on £1,176.00, not on £980.00.
If you are not VAT registered, the VAT you paid on the materials is part of your cost. You cannot reclaim it, so work your markup on the full amount you paid, VAT included.

This is general principle only, so check with your accountant for your own case. For whether you need to register, see our guide to the VAT registration threshold.

How to use this with our calculator

Open the Price a job tab of the day rate calculator. It has a materials cost box and a markup % box, so you can type in £980 and 20% and see the selling price. The calculator takes a markup, so if you start from a margin, use the reverse sum above and enter the markup it gives you. Then list the materials as separate lines on your quote template so the customer sees what they are paying for.