FIELD NOTE · Pro Shop Owner
Margin and markup: the pricing mix-up that hides profit
Two percentages can describe the same sale—and lead to very different prices.
Start with one job, not a percentage
Suppose a shop sells a service for $50 and spends $30 on the costs assigned to that service. The difference is $20. Markup divides that $20 by cost: $20 ÷ $30 = 66.7%. Margin divides it by selling price: $20 ÷ $50 = 40%. Neither number is more honest; they answer different questions. Confusion starts when a target margin is applied as if it were a markup.
What a 40% target actually means
If assigned cost is $30 and the target margin is 40%, the price is $30 ÷ (1 − 0.40), or $50. Adding 40% to the $30 cost produces $42. That leaves $12, a margin of only 28.6%. The calculator on this site uses cost divided by one minus target margin. It also lets you include a percentage payment fee in the price calculation.
Define the cost before comparing jobs
Supplies alone rarely describe the whole job. A service can consume inserts, finishing materials, payment fees, and technician time. Decide whether you are modeling cash contribution before labor or contribution after a labor allowance. Label the result and use the same definition across jobs. The calculator includes your stated labor rate and allocated overhead; it cannot discover those costs for you.
Use the number as a decision aid
Price three representative services using the same method. Compare the result with actual time records, customer expectations, and the full shop cost base. A calculated price is a starting point, not proof that buyers will accept it. If the result looks too high, investigate the process and scope before deleting labor from the model. Review the worksheet after a month of real jobs.
Prepared with AI assistance. Examples are constructed for explanation, not reported customer results. Corrections are welcome through the contact page.
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