What is the difference between margin and markup?

Margin is profit as a share of the price. Markup is profit as a share of the cost. The same profit gives a higher markup percentage than margin percentage.

Should I price low to get on a framework?

Only if the framework guarantees volume you can deliver profitably. Framework prices tend to set the ceiling for years.

How do I handle a price and quality split?

Model two prices, one at your target margin and one at your floor, and decide in advance which you will submit.

Free tender toolkit

Tender Pricing Calculator

Costs plus a target margin gives the price you should submit. The calculator handles the part that trips people up: a 20% margin is not a 20% markup, and pricing as though it is quietly gives away several points of profit.

Direct costs

Overhead to recover

Target net margin

Total cost: £56,000
Price to submit: £65,882
Equivalent markup on cost: 17.6%

Profit at this price: £9,882. Adding the margin percentage to cost instead would give £64,400 and a lower true margin.

Estimate only, not financial or regulatory advice. This is an estimate only, provided for general guidance. It is not tax, accounting, financial or legal advice. Check any figures with a qualified professional before relying on them.

How it works

Total cost is direct costs plus the overhead you need this contract to carry.
Price is calculated as total cost divided by one minus the target margin, which produces a true margin.
The equivalent markup on cost is shown alongside, so you can see the gap.
The profit figure shown is price minus total cost.

Worked UK example

Direct costs of 50,000, overhead of 6,000, and a target net margin of 15%.

Total cost: 56,000.
Price: 56,000 / (1 - 0.15) = 65,882.
Profit: 9,882.
Equivalent markup on cost: about 17.6%.

Submitting 65,882 delivers the 15% margin. Adding 15% to cost would have given 64,400 and only a 13% margin.

Understanding your result

Once you have the price, sense check it against the buyer's likely budget and any published estimated value. Public tenders are usually scored on a price and quality split, so being a little above the cheapest bid is often survivable if your quality answers are strong. Being below your own cost never is.

Frequently asked questions

What is the difference between margin and markup?: Margin is profit as a share of the price. Markup is profit as a share of the cost. The same profit gives a higher markup percentage than margin percentage.
Should I price low to get on a framework?: Only if the framework guarantees volume you can deliver profitably. Framework prices tend to set the ceiling for years.
How do I handle a price and quality split?: Model two prices, one at your target margin and one at your floor, and decide in advance which you will submit.

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