Table of Content
- What Is Markup?
- What Is Gross Margin?
- What Is the Difference Between Margin and Markup?
- How Do You Convert Margin to Markup?
- Why Does Margin vs Markup Matter for VARs?
- How Do Discounts Affect VAR Margins?
- Margin Percentage vs Gross Profit Dollars
- How Can VARs Protect Profit Margins?
- How VARStreet Helps VARs Protect Quote Profitability
- Frequently Asked Questions
Margin and markup both describe the profit on a sale, but they are not the same number, and confusing the two is one of the most common pricing mistakes VARs make. Markup is the amount you add on top of your cost. Margin is the share of the sale price you keep. Quote a 20% markup when you meant a 20% margin, and the deal comes in at 16.7%, not 20%. On thin hardware margins, that small gap adds up fast. This guide explains margin vs markup in plain language, shows the formulas and covers how to quote so the margin you plan is the margin you keep.
Key Takeaways:
- Markup is figured on your cost. Margin is figured on your sale price. The same deal gives two different percentages.
- A 20% markup is only a 16.7% margin. To get a 20% margin, you mark up by 25%.
- Track profit in dollars, not just percentages. A big deal at a lower rate can earn more than a small deal at a high rate.
- Small discounts cut margin faster than most reps expect. Set discount limits before quotes go out.
What Is Markup?
Markup is the amount you add to your cost to set your selling price. It is always figured as a percentage of what you paid, not what you charge.
The formula is simple:
Markup % = (Selling Price − Cost) ÷ Cost × 100
Say a product costs you $800 and you sell it for $960. You added $160 on top of your cost. That is $160 ÷ $800, or a 20% markup.
Markup is easy to use because you start from a number you already know: your cost. You pick a percentage, add it on, and you have a price. That is why many reps quote this way. The catch is that markup always looks bigger than the margin on the same sale, so it can make a deal feel more profitable than it really is.
What Is Gross Margin?
Gross margin is the share of the selling price you keep as profit after paying for the product. It is figured as a percentage of the sale price, not your cost.
The formula is:
Margin % = (Selling Price − Cost) ÷ Selling Price × 100
Take the same product: it costs $800 and sells for $960, so your profit is $160. As margin, that is $160 ÷ $960, or 16.7%.
Margin matters because it is the number your business actually runs on. Your profit and loss statement, your targets and your reporting are all built on margin, not markup. When you know your margin, you know how much of every sale is left to cover payroll, rent and everything else.
One related term is worth knowing here: contribution margin. It is what a deal leaves after the product cost and the direct costs of delivering it, such as labor, shipping and installation. A deal can look healthy on gross margin and still leave very little once that work is counted.
What Is the Difference Between Margin and Markup?
Both margin and markup start from the same two numbers: what you paid and what you sold it for. The difference is which number you divide by.
Markup divides your profit by your cost. Margin divides your profit by your selling price. Because your cost is always smaller than your selling price, markup always comes out as the bigger percentage.
Here is the example that shows why this matters. A product costs $800. A rep wants to make 20%, so they add 20% to the cost and quote $960. The deal closes, and the rep reports it as a 20% deal.
But the business wanted a 20% margin, and it got 16.7%. On a $960 sale, the $160 of profit is 16.7% of the price, not 20%. The rep did nothing wrong. They added 20%, exactly as asked. The problem is that adding 20% to cost is a 20% markup, and a 20% markup is only a 16.7% margin.
Put simply: a 20% markup equals a 16.7% margin. They are not the same, and the gap between them is profit you planned to earn and did not. On one deal, it is small. Across every deal a rep prices this way, it adds up to real money.
How Do You Convert Margin to Markup?
The safest way to quote is to set your target in margin, then convert it to the markup that gets you there. The two are linked by a fixed formula:
Markup % = Margin % ÷ (100 − Margin %) × 100
You do not need to do the math on every quote. Keep this table where your reps can see it, so the right markup is always one glance away. Figures confirmed by AccountingTools.
| Target Margin | Markup You Need |
|---|---|
| 10% | 11.10% |
| 15% | 17.60% |
| 20% | 25% |
| 25% | 33.30% |
| 30% | 42.90% |
| 40% | 66.70% |
The pattern is clear: to hit any margin, you always mark up by more. A rep who wants a 20% margin marks up by 25%, not 20%. Skip the conversion and quote the margin figure as a markup, and every deal lands short, always in the same direction. This one habit, converting before you quote, closes the most common pricing gap in reseller sales.
Why Does Margin vs Markup Matter for VARs?
For a Value-Added Reseller (VAR), the margin vs markup gap is not just a math point. It shows up in the parts of the business where profit is already tight. Four things make it matter more for VARs than for most sellers.
Complex product mixes
A single quote can carry hardware, software, services and support. Each has a different cost structure and a different target margin. Mix up markup and margin across a multi-line quote, and the errors stack on top of each other.
Thin-margin products
Hardware margins often sit in the single digits. When your whole margin is that small, a few points lost to a markup slip can wipe out a real share of the profit on the deal.
Customer discounts
A discount cuts your margin faster than most reps expect, because it comes straight off the profit, not the price. A small discount on a thin-margin product can erase the deal’s profit entirely.
Changing distributor costs
Your cost is not fixed. If a distributor changes the price between the time you build the quote and the time you place the order, the margin you quoted is no longer the margin you get. Quoting from stale cost makes the gap worse.
Put these together and the message is simple. For a VAR, quoting the wrong number is not a rounding error. It is profit walking out the door on deals you already won.
How Do Discounts Affect VAR Margins?
A discount does not come off your selling price gently. It comes straight off your profit, and on thin margins it bites hard.
Here is an example. You sell a product for $1,000 that costs you $850. Your profit is $150, a 15% margin. A rep offers the customer a 10% discount to close the deal, dropping the price to $900. That $100 discount does not just trim the price. It comes out of your $150 profit, leaving $50. Your margin has fallen from 15% to about 5.6%, and your profit has been cut by two-thirds. The rep gave away 10%, but the profit dropped far more than 10%.
This is why discount limits matter. A rep who cannot see the margin while discounting is guessing. Set clear discount limits, and make sure the margin is visible at the moment the discount is applied.
Margin Percentage vs Gross Profit Dollars
A percentage does not pay your bills. Dollars do.
Gross profit in dollars (GP$) is simply your selling price minus your cost. It is worth watching alongside the percentage, because the two can point in different directions.
A 25% margin on a $400 order is $100. A 12% margin on a $4,000 server deal is $480. The second deal has the lower rate but earns almost five times the dollars. A rep who chases the higher percentage alone would pick the wrong deal. Track both: the rate tells you if a deal is healthy, and the dollars tell you if it was worth the work.
How Can VARs Protect Profit Margins?
You do not need to buy anything to start protecting margin. Five controls do most of the work.
Quote from current costs
Your margin is only as accurate as your cost. Use the latest distributor cost, not a price list from last week, so the margin you see is the margin you get.
Set target margins
Decide the margin you need on each product type before quoting, and set it in margin, not markup. A clear target gives reps a floor to work from.
Use pricing rules
Standard pricing rules keep every rep quoting the same way. They stop the guesswork and keep prices consistent across your team.
Control discounts
Set discount limits, and require sign-off when a rep wants to go below the floor. This keeps one deal from quietly eating its own profit.
See profitability at the quote level
Make the margin visible while the quote is being built, not after it closes. A rep who can see the margin as they type makes better calls on price and discount.
Start with the first one today. Pull your last ten quotes and work out the real margin: profit divided by the sale price, not the cost. If you priced by adding a percentage to cost, most will sit a few points below your target, every time.
How VARStreet Helps VARs Protect Quote Profitability
Knowing the difference between margin and markup is the first step. Seeing it on every quote, without extra effort, is what makes it stick. This is where purpose-built quoting software helps. Here is how VARStreet supports each part.
Current distributor costs. Accurate margin starts with accurate cost. VARStreet pulls live cost from your distributors into the quote, so reps price from today’s number, not a stale one. When the starting cost is right, the margin the rep sees is real.
Pricing and margin rules. You can set pricing rules based on margin, markup and distributor discounts. The rules apply the same way for every rep, so pricing stays consistent and no one has to convert margin to markup by hand.
Quote-level profitability. Margin is visible at the line-item level while the quote is being built, not discovered later in a report. A rep can see the profit on each line as they price it, and adjust before the quote goes out.
Discount and approval controls. You can set margin thresholds and discount limits. If a quote falls below the floor, VARStreet routes it for approval automatically, so a thin deal gets a second look before the customer sees the price.
Together, these turn the ideas in this guide into something reps use without thinking about it. The margin you plan stays visible from the first line of the quote through to the order. You can book a demo to see how it works on your own numbers.
Frequently Asked Questions
What is the difference between margin and markup?
Markup is profit divided by cost. Margin is profit divided by selling price. The same deal gives a higher markup than margin, because your cost is smaller than your price.
Is a 20% markup the same as a 20% margin?
No. A 20% markup is only a 16.7% margin. To get a 20% margin, you need a 25% markup.
How do I convert a margin target into a markup?
Divide the margin by (100 minus the margin), then multiply by 100. For a 20% margin: 20 ÷ 80 × 100 = 25% markup.
Why does markup vs margin matter so much for VARs?
Hardware margins are thin, so a few points lost to the wrong number is a big share of the profit. On low-margin products, the mistake can erase the deal’s profit.
How much does a discount really cost me?
More than the discount percentage. A discount comes straight off your profit, not your price, so a 10% discount on a thin-margin deal can cut your profit by half or more.
What is the easiest way to stop quoting the wrong number?
Set your targets in margin, then convert to the markup that hits them using a fixed table. Better still, use a quoting tool that shows the margin on each line as you build the quote.
