Markup is the amount you add on top of what something costs you to set the price the customer pays. It is calculated on the cost: materials that cost you $240 with a 20 per cent markup are sold for $288. On materials, the markup is not profit for nothing. It pays for the time spent ordering and collecting, the trips back to the supplier for the wrong fitting, storage in the ute, stock that gets damaged, returns that are refused, and the warranty claim you will handle if the product fails. Labour can carry a markup too, as the gap between what a worker costs you per hour and the rate you charge for them.
Because it is worked out on cost and not on price, a markup percentage is always bigger than the margin it produces. A 25 per cent markup gives a 20 per cent margin. A 50 per cent markup gives a margin of a third. Mix them up and your prices come out lower than you intended.
In practice
A plumber buys a mixer tap for $180 at trade price and marks up materials by 25 per cent, so the tap goes on the quote at $225. The customer sees the same tap online for $210 and asks why. A straight answer works: the price covers the plumber collecting it, checking it is the right model for the existing holes, and dealing with the manufacturer if it leaks in year two. Customers who supply their own fittings save the markup and take on all of that themselves, which is worth saying in the note.
Markup is also where supplier price rises bite. If your price list holds sell prices that were set from last year's costs, every rise your supplier puts through comes straight out of your margin until you update the list. The guide to materials markup, wastage and supplier price rises covers how to keep up without re-pricing every week.
In Quote Desk
A price list item has three fields, a name, a price and a unit, and no cost field, so work out the markup before you type the price in. When a supplier's price changes, remove the item and add it again at the new sell price; quotes already saved keep their old figures. See setting up your price list.