Guides · 24 October 2026
Markup vs margin for machine shops: which one is in your price?
Two shops both say they price at 25%. One adds 25% to its cost, the other keeps 25% of the price. On the same job their prices differ by more than 6%, and only one of them earns the 25% it thinks it does. Here is the difference, how to convert one into the other, and where it quietly costs money.
Two ways to put profit into a price
Markup is profit as a share of your cost. Margin is profit as a share of the price. Both start from the same cost; they just divide by different numbers.
Price with markup = cost × (1 + markup)
Price with margin = cost ÷ (1 − margin)
A part that costs you US$100 to make, materials, machine time, labour and overhead included:
- With a 25% markup the price is US$125. Profit is US$25, which is 20% of the price.
- With a 25% margin the price is US$133.33. Profit is US$33.33, which is 25% of the price.
“Margin on cost”, a phrase many shops use, is markup. Accountants, banks and your profit and loss statement work in margin: profit as a share of sales.
Converting one into the other
margin = markup ÷ (1 + markup)
markup = margin ÷ (1 − margin)
| Markup on cost | Margin on price |
|---|---|
| 10% | 9.1% |
| 20% | 16.7% |
| 25% | 20.0% |
| 33.3% | 25.0% |
| 42.9% | 30.0% |
| 50% | 33.3% |
| 100% | 50.0% |
The gap grows with the number. At 10% it hardly matters; at 30% and above it is a real difference in price.
What the mix-up costs over a year
A shop plans for a 25% margin, its accountant's figure, but its quoting spreadsheet adds 25% to cost. Over a year it quotes and wins work that costs US$400,000 to make.
- Priced with the 25% markup it bills US$500,000 and makes US$100,000: a 20% margin.
- Priced with a true 25% margin it would have billed US$533,333 and made US$133,333.
The difference, US$33,333, is not a lost order or a bad job. It is the same work, priced from a formula that does not match the target.
Discounts come out of the profit, not the price
The US$133.33 part again, with a 25% margin. The buyer asks for 10% off, and the price goes to US$120.00. The cost has not changed, so profit falls from US$33.33 to US$20.00: the margin drops to 16.7% and the profit on the job by 40%.
Before you agree to a discount, work out what is left at the new price, or offer something that changes the cost as well: a bigger batch, a longer lead time, or dropping a report the buyer does not need.
Which one to use
- Set your target as a margin. It is the number on your accounts, so you can check quotes against what the business actually earns.
- Apply it to full cost. Material, machine and labour time, setup, programming, outside processing and overhead. A margin on part of the cost is a smaller margin than it looks.
- If you prefer markup, convert first. For a 25% margin, mark up by 33.3%, not 25%.
- Say which one you mean. When someone in the shop says “we work on 25%”, ask: of the cost, or of the price?
In Spindlewise, the price comes from a target return on full cost: profit as a share of the price, the same way your accounts measure it. Markup is there too if that is how you work, and the costing then reminds you that the figure is not a margin. Every quantity shows its return on full cost next to the price, so you see what a discount would leave before you give it.