Difference between Markup and Margin

There is a common confusion when it comes to calculating ‘Markup’ and ‘Margin’. (May also be referred to as Builder’s Margin, or Profit Margin)

Some people seem to assume that they both mean the same thing.

However, there is a big difference between calculating the two. Failure to understand the difference can sometimes cause conflicts to arise between the builder and client. As such, it is important to be able to distinguish between the two.

Example:

Let’s say for instance something was to cost $80.

A 20% Markup for $80 would be:
$80 + $16 (which is 20% of $80)
= $96

IF a 20% Margin was to be applied on the other hand:
$80 + $20 (which is the 20% margin)
= $100 (as 20% of $100 is $20 and not $16)

As you can see from the example above, there is a final 4% difference between the two methods.

As long as the percentage chosen for Markup and Margin remains the same amount (in this case 20%), the Markup method will always result in a lower number.

So when you go into the next meeting or contract signing, be more attentive as to which proposed method has been stated. In construction, most contracts (such as the ABIC Contracts, HIA contracts or MBA’s contracts) will mention Margin as opposed to Markup so it is important to know how these calculations are done.

Click here for an online calculator which enables you to find out the final figure without worrying about the Math.

(Image sourced from Accountancy Learning)

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