Margin vs. markup: how to price without losing money
Updated on 22/10/2026
Margin and markup are not the same thing, and mixing them up is the most common way to quote below what you think. If you add 25% to a cost of S/ 10,000 (S/ 12,500), your real margin isn't 25%: it's 20%.
The three formulas
Price = Cost ÷ (1 − Margin)
Margin = (Price − Cost) ÷ Price
Markup = (Price − Cost) ÷ Cost
Use percentages as decimals: 25% is 0.25. Margin is measured on what you charge; markup, on what it costs you.
Example: cost of S/ 10,000 and a 25% target margin
- Price before taxes: 10,000 ÷ (1 − 0.25) = S/ 13,333.33
- Profit: 13,333.33 − 10,000 = S/ 3,333.33
- Margin: 3,333.33 ÷ 13,333.33 = 25%
- Equivalent markup: 3,333.33 ÷ 10,000 = 33.33%
Equivalence table
| Margin on sales | Markup on cost |
|---|---|
| 10% | 11.11% |
| 15% | 17.65% |
| 20% | 25.00% |
| 25% | 33.33% |
| 30% | 42.86% |
| 35% | 53.85% |
| 40% | 66.67% |
| 50% | 100.00% |
Watch out for discounts
A discount comes entirely out of your profit. If you quote S/ 13,333.33 at a 25% margin and give a 10% discount, you charge S/ 12,000 and your margin drops to 16.7%: you lost a third of your profit, not a tenth.
MIVA Cost shows margin and markup side by side, and warns you when a discount takes you below your minimum margin.
Frequently asked questions
Can margin be higher than 100%?
No. Margin on sales is always below 100%, because profit can never exceed the price. Markup can go above 100%: selling something that costs S/ 100 for S/ 300 is a 200% markup and a 66.7% margin.
Is IGV included in the margin?
No. Calculate margin and markup on the price before IGV (sales tax). IGV is a tax you collect on behalf of SUNAT, not your income.
What is a good margin for a service?
It depends on the industry, the risk, and how long your client takes to pay. More important than the number is knowing how much you keep after financing the job: 20% collected at 60 days can leave you with a lot less.
This guide is for reference only and does not replace advice from an accountant or lawyer.