Margin vs Markup — The Difference Every Freelancer Should Know
Updated 2026-11-13
If you resell anything — stock assets, printing, hosting, subcontracted work — you need to know the difference between margin and markup. They sound interchangeable, but confusing them can quietly shrink your profit.
Check any price with the free Margin & Markup Calculator.
The definitions
- Profit = price − cost
- Markup = profit ÷ cost (how much you added on top of what you paid)
- Margin = profit ÷ price (how much of what the client pays you keep)
Both use the same profit. They differ only in what they divide by.
Example
You pay a subcontractor 400 for a piece of work and charge your client 500.
- Profit: 500 − 400 = 100
- Markup: 100 ÷ 400 = 25%
- Margin: 100 ÷ 500 = 20%
The common mistake
Suppose you want a 25% margin and you "add 25%" to the cost: 400 × 1.25 = 500. That is a 25% markup, which gives only a 20% margin. To get a true 25% margin, divide the cost by (1 − margin):
Price = cost ÷ (1 − target margin) → 400 ÷ 0.75 = 533.33
Quick conversion table
| Markup | Equivalent margin |
|---|---|
| 10% | 9.1% |
| 25% | 20% |
| 50% | 33.3% |
| 100% | 50% |
To convert: margin = markup ÷ (1 + markup), and markup = margin ÷ (1 − margin).
Setting a markup policy
It helps to decide your markup rules once, instead of negotiating them on every project. A simple policy might look like this:
- Pass-through costs you simply buy for the client (stock photos, fonts, domain names): a small markup, often 10% to 20%, to cover the time spent sourcing, purchasing and keeping receipts.
- Subcontracted work you manage and take responsibility for: a larger markup, because you carry the risk if the work is late or needs fixing, and you spend time briefing and reviewing it.
- Software or services the client could easily buy directly: consider passing them through at cost and charging for your setup time instead. Clients appreciate transparency.
Write the policy into your proposal template so it is applied consistently. If a client asks, you can explain it in a sentence.
Why it matters for freelancers
When you subcontract part of a project or pass through expenses, your markup needs to cover the time you spend managing it, the risk if the subcontractor is late, and your payment-processing costs. Thinking in margin terms — "what share of this price do I keep?" — makes it easier to compare jobs and to see whether a project is worth taking.
Key takeaways
Markup divides profit by cost; margin divides it by price. Decide which one you are targeting, use the right formula, and you will not leave money on the table.
General information only, not financial advice.