HVAC Markup vs Margin Calculator
Markup is what you add to cost. Margin is what you keep out of the price. A part that costs 100 and sells for 150 is a 50 percent markup and a 33.3 percent margin. If you have been using those two words for the same number, you have been earning the smaller one.
The two formulas
- margin = markup / (1 + markup). A 50% markup keeps 33.3%.
- markup = margin / (1 - margin). To keep 40% you mark up 66.7%.
- price = cost x (1 + markup), or equivalently price = cost / (1 - margin).
The second form of the price equation is the one worth memorizing, because it is the one people get wrong. Dividing by one minus the margin is not the same as multiplying by one plus it, and no amount of rounding makes them meet.
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Markup to margin
Read this one when you already know what you add on and want to know what you keep. The multiplier column is what to multiply cost by.
| Markup | Margin you keep | Cost multiplier |
|---|---|---|
| 10% | 9.1% | 1.100x |
| 15% | 13.0% | 1.150x |
| 20% | 16.7% | 1.200x |
| 25% | 20.0% | 1.250x |
| 30% | 23.1% | 1.300x |
| 40% | 28.6% | 1.400x |
| 50% | 33.3% | 1.500x |
| 60% | 37.5% | 1.600x |
| 75% | 42.9% | 1.750x |
| 100% | 50.0% | 2.000x |
| 150% | 60.0% | 2.500x |
| 200% | 66.7% | 3.000x |
Margin to markup
Read this one the way you actually think: you know what you want to keep, and you need to know what to type into the price column.
| Margin you want | Markup needed | Cost multiplier |
|---|---|---|
| 10% | 11.1% | 1.111x |
| 15% | 17.6% | 1.176x |
| 20% | 25.0% | 1.250x |
| 25% | 33.3% | 1.333x |
| 30% | 42.9% | 1.429x |
| 35% | 53.8% | 1.538x |
| 40% | 66.7% | 1.667x |
| 45% | 81.8% | 1.818x |
| 50% | 100.0% | 2.000x |
| 55% | 122.2% | 2.222x |
| 60% | 150.0% | 2.500x |
Notice where the second table goes vertical. Up to about 30 percent the two numbers are close enough that mixing them up costs you a little. Past 50 percent they come apart fast, and that is exactly the range where the small parts live.
Three ways this costs money
Quoting from a target margin using a markup
You decided you need 35 percent to keep the lights on, so you add 35 percent. You are keeping 25.9 percent. Every job in the year is short by the same fraction, and nothing about the shortfall is visible on any single invoice.
Discounting off the price without checking the margin
Ten percent off a price at a 30 percent margin leaves 22.2 percent, not 20. Discounts come out of margin, not out of markup, and the smaller the margin the more of it a given discount takes. On a thin job a ten percent discount can take a third of the profit.
Using one number for parts and equipment
A capacitor and a condenser do not cost you the same to carry, stock, warranty or fetch. Applying the same percentage to both means one of them is subsidizing the other, and the small one is usually paying for the big one, which is backwards.
Put the number where it gets used
The multiplier is only worth anything if it is applied every time. Save the priced line in your price list once, and the next quote comes up with the right number already in it instead of being worked out again on a phone in a driveway.
The builder is the paid part of this site: $29 a month for the shop, never per technician, cancel in one click. The price and the terms are on one page. This calculator and the sheet below are free either way.
Download the conversion table PDF
Related
The labor side of the same question is the HVAC labor rate calculator, and putting both together into a fixed price per task is the flat rate pricing guide. The document the numbers end up on is the HVAC estimate template, built in the estimate software.
Markup and margin questions
What is the difference between markup and margin?
Markup is measured against your cost. Margin is measured against your price. A part that costs 100 and sells for 150 carries a 50 percent markup and a 33.3 percent margin. Same job, same money, two different numbers, and they are only equal when both are zero.
What markup do I need for a 40 percent margin?
66.7 percent. The formula is markup = margin / (1 - margin). If you mark up 40 percent instead, you keep 28.6 percent, and the shortfall grows with the size of the job because it is a percentage of a bigger number.
Is a 50 percent markup the same as a 50 percent margin?
No, and this is the mistake that costs contractors the most. A 50 percent markup is a 33.3 percent margin. To actually keep 50 percent of the price you have to double the cost, which is a 100 percent markup.
Should HVAC parts and equipment carry the same markup?
Usually not. A small part you stock, carry, warranty and fetch on a Sunday costs you far more than its purchase price suggests, so it carries a higher markup than a condenser that goes straight from the supplier to the driveway. What matters is that you decide the number rather than inherit it, and that you know which of the two numbers you decided.
Does this calculator send my numbers anywhere?
No. It runs in your browser, there is nothing to sign in to, and nothing is stored on our side. The table below it works with scripts turned off, and the PDF works with no browser at all.