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Write the two formulas before approving the quote
An established business can use the word margin loosely in a handover between sales and finance. For this calculation, define cost as the specific per-unit cost included in the quotation. Markup is (selling price minus that cost) divided by cost. Margin is the same difference divided by selling price.
Business Victoria’s published formulas distinguish these denominators. Its terminology and examples are educational references; they do not supply a suitable margin for your U.S. offer.
What happens to a US$140 cost?
Fictional example, all amounts in U.S. dollars per unit: the included cost is US$140, and management is comparing a 25% markup with a 25% margin on the selling price. These are chosen percentages, not recommendations.
| Calculation | Selling price | Amount above included cost |
|---|---|---|
| US$140 × 1.25: 25% markup | US$175.00 | US$35.00 |
| US$140 ÷ 0.75: 25% margin | About US$186.67 | About US$46.67 |
The cheaper quote leaves a 20% margin at this cost level
At US$175, the US$35 difference is 20% of the selling price: 35 divided by 175. Calling it a 25% margin would overstate what that particular calculation leaves. For a chosen margin m below 100%, the corresponding price formula is cost divided by (1 minus m).
A per-unit difference is only useful if the cost base is complete for its stated purpose. If US$140 contains product and inbound freight but leaves out sales commission, local installation or support, the difference still has to cover those jobs. Changing the percentage label cannot pay an omitted cost.
Use one definition from quotation to annual model
Ask sales to show the cost items, percentage base and rounding rule on the quotation approval sheet. Finance should check a sample calculation rather than assuming a spreadsheet heading means everyone used the same formula. A higher calculated price also needs buyer evidence; the arithmetic does not establish demand.
When moving into U.S. unit economics, multiply supported unit prices by the relevant annual quantities and enter the corresponding annual costs. Keep this unit calculation beside the worksheet. The annual tool does not determine a per-unit markup or validate a customer price.
Scope
- The figures are fictional and show arithmetic at one stated cost level, not a net-profit target, market price, tax treatment or permission to coordinate resale prices.
Next step
Approve a quote only after recording the cost base, denominator and rounded selling price. Convert supported quantities and prices into annual totals for the unit-economics comparison.
Sources & review notes
Government of Victoria — Business Victoria
Passage, dates and research notes
official-guidance · How to calculate gross margin and markup; different denominators
Formula definitions read; original ELN USD figures. Broader service-business, net-margin and tax statements are not adopted.
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