Pricing4 min read
Markup is not margin, and the difference is costing you
Why adding 25% to cost does not give you a 25% margin, how to convert between the two, and the one formula every contractor should quote from.
- Updated
- 18 Oct 2026
In short
If you read nothing else.
- 01
Markup is profit as a share of cost. Margin is profit as a share of price.
- 02
A 25% markup gives a 20% margin, not 25%.
- 03
To hit a target margin, divide cost by (1 − margin). Do not multiply.
In this guide3 sections +
Most contractors build a price the same way: work out roughly what the job will cost, then add a percentage. The percentage gets called margin. It is not. It is markup, and the gap between the two is profit you think you are making and are not.
The two numbers
Take a job that costs R10,000. Add 25% and the price is R12,500. Profit is R2,500. As a share of cost that is 25%. As a share of the price the customer pays, it is R2,500 ÷ R12,500, which is 20%.
That matters because your overheads, your tax and your own pay all come out of the price, not out of cost. When a bookkeeper, a bank or a buyer talks about your margin, they mean the share of the price.
What the confusion costs
On a business turning over R3 million a year, believing you run at 25% when you actually run at 20% is a R150,000 difference in what you think is left over.
Quote from margin, not markup
The calculation
Price= total cost ÷ (1 − target margin)
R10,000 ÷ (1 − 0.25)= R13,333
If you want a 25% margin on a job that costs R10,000, the price is R13,333, not R12,500. The extra R833 is the part most price lists leave out.
General information, not advice. This guide explains the general position for South African businesses. It is not tax, legal or accounting advice. For your specific situation, speak to your accountant, registered tax practitioner or attorney.