Why doesn't a 30% markup give me a 30% margin?

Because markup divides the same dollars by cost and margin divides them by price. A 30% markup on cost is a 23.1% margin. To reach a 30% margin, divide cost by 0.70, which is a 42.9% markup.

What does value added tell me?

It is the part of the price your own shop earns: price minus material and outside processing, which value added by manufacture also subtracts. When purchased content is most of the price, a small material overrun can take a large share of margin.

What belongs in in-house conversion cost?

Setup and run hours for every in-house operation, times a shop or machine rate that includes labor and overhead. Selling and administrative costs stay out; gross margin has to cover them.

The customer countered 10% lower. Can I still hit my target?

Only if cost headroom at the new price is zero or more. Enter the counteroffer as the quoted job price; a negative headroom is the cost you would have to take out of the estimate to keep your target.

Contract Manufacturing, Job Shop Quoting & Make-to-Order calculator

Contract Manufacturing Margin Calculator

Check a contract manufacturing quote against your gross margin target before it goes out. You need the quoted job price, the estimate's material, conversion and outside processing costs, and your target.

What this calculator does

Gross margin on a quoted job, the price that hits your target, and the cost overrun the quote can absorb.

Formula used

Estimated job cost = material + in-house conversion + outside processing
Gross margin = (quoted job price − job cost) ÷ quoted job price × 100
Markup on cost = (quoted job price − job cost) ÷ job cost × 100
Price at target margin = job cost ÷ (1 − target ÷ 100); cost headroom = quoted job price × (1 − target ÷ 100) − job cost
Value added = quoted job price − material − outside processing

Inputs explained

Quoted Job Price: Net price on the quote, after customer discounts and allowances.
Material Cost: Stock, purchased parts, job tooling and packaging, with scrap allowance.
In-House Conversion Cost: Setup and run hours in the estimate times your shop rate.
Outside Processing Cost: Vendor quotes for plating, heat treat and similar, with freight.
Target Gross Margin: Your minimum gross margin on price for this work.

How to use the result

Best suited to final check before a quote goes out, answering a customer's price counteroffer, explaining margin versus markup to sales.
Margin is only as good as the estimate; compare with actual job cost at close-out in Margin Leakage. Does not price risk such as a failed first article, expedite freight or customer changes.

Current U.S. benchmarks

The U.S. prime lending rate is 7.00% (Federal Reserve via FRED, 2026-10-02). Payback and financing math should start from today's rate, not a remembered one.

Common questions

Why doesn't a 30% markup give me a 30% margin? Because markup divides the same dollars by cost and margin divides them by price. A 30% markup on cost is a 23.1% margin. To reach a 30% margin, divide cost by 0.70, which is a 42.9% markup.
What does value added tell me? It is the part of the price your own shop earns: price minus material and outside processing, which value added by manufacture also subtracts. When purchased content is most of the price, a small material overrun can take a large share of margin.
What belongs in in-house conversion cost? Setup and run hours for every in-house operation, times a shop or machine rate that includes labor and overhead. Selling and administrative costs stay out; gross margin has to cover them.
The customer countered 10% lower. Can I still hit my target? Only if cost headroom at the new price is zero or more. Enter the counteroffer as the quoted job price; a negative headroom is the cost you would have to take out of the estimate to keep your target.

Related guides

Last reviewed 2026-10-01.