Markup
The amount added to your cost to set a selling price, usually expressed as a percentage of cost.
Definition
Markup is the amount you add on top of your cost to arrive at a selling price, almost always expressed as a percentage of that cost. If a print job costs your agency $400 and you bill the client $500, you applied a 25% markup. Service businesses use markup constantly: on subcontractors, stock photography, printing, ad spend, software seats, and any other pass-through cost they resell to clients.
The classic trap is confusing markup with margin. Markup is calculated on cost; margin is calculated on the selling price. That $400 cost with a 25% markup gives you a $500 price, but the $100 of profit is only a 20% margin ($100 of $500). The gap widens fast: a 50% markup is a 33% margin, and a 100% markup is a 50% margin. If your target is a 50% margin and you only mark costs up 50%, you will miss it on every job.
Why It Matters
Markup is where a lot of quiet profit lives in a service business. Passing subcontractor and material costs through at face value means you are administering those purchases—carrying the cash flow risk, managing the vendor, guaranteeing the result—for free. A standard 15-30% markup on pass-through costs compensates you for that coordination and risk, and most clients expect it when it is disclosed in your agreement.
Getting the markup-versus-margin math wrong, on the other hand, silently erodes pricing power. If you promise yourself a 40% margin but build quotes with a 40% markup, every project lands at roughly a 29% margin instead, and you will not see why the bank balance lags the plan. Decide which number you are managing to, and make your quoting math match it.
Examples
- 1
An agency pays a freelance videographer $2,000 and bills the client $2,500—a 25% markup that covers sourcing, review cycles, and payment risk.
- 2
A contractor buys $10,000 of materials and applies a 20% markup, invoicing $12,000; the $2,000 of profit is a 16.7% margin on the price.
- 3
A studio targeting 50% margins realizes a 50% markup only yields 33%, so it switches to doubling cost (100% markup) on resold services.
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