Bad advice, corrected · checked 19 October 2026
A 20% markup is not a 20% margin.
If you set prices by adding a percentage to your cost, this is the number to check.
The short version
Markup is your profit divided by what the work costs you. Margin is your profit divided by what the client pays.
Say a developer costs you $100 an hour. Add 20% and you bill $120. You keep $20. That's 16.7% of the price.
For a real 20% margin, divide your cost by 0.8. That's $125 an hour, not $120.
In numbers
| Pricing | You bill | You keep | Margin |
|---|---|---|---|
| 20% markup ($100 × 1.2) | $120 | $20 | 16.7% |
| 20% margin ($100 ÷ 0.8) | $125 | $25 | 20% |
Sources
Checked on 19 October 2026.
No law here, just arithmetic. Margin = profit ÷ price. For a target margin, price = cost ÷ (1 − margin). Check it with your own numbers.
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Psst is made by Zain Ali, who founded ivector, a software company.