What is the quote margin formula?

Gross Margin (%) = (Selling Price - Cost) / Selling Price x 100. Selling Price is what the customer pays per unit and Cost is the fully loaded per-unit manufacturing cost including material, labor, overhead, and setup. For a part costing $6.80 that sells for $9.50, margin is ($9.50 - $6.80) / $9.50 x 100 = 28.4%. The result is the share of the price that is profit before indirect costs.

How do I calculate the selling price to hit a target margin?

Rearrange the formula: Selling Price = Cost / (1 - target margin). To get 35% margin on a $6.80 cost, divide by (1 - 0.35): $6.80 / 0.65 = $10.46. Do not multiply cost by 1.35; that gives a markup, not a margin, and leaves you at only 26% margin. Always divide by one minus the decimal margin.

What is a good gross margin for a CNC job shop?

Most machine shops target 25 to 40% gross margin per part. Complex, low-volume, tight-tolerance work supports 40% or more, while high-volume commodity parts often run 15 to 25%. Below 20% there is little room for scrap or estimating error. The 28.4% in the example is a healthy production number but thin if your realized margins routinely erode 5 points from rework.

Why is my quoted margin higher than my actual margin?

The gap almost always comes from Cost being understated at quote time. Common culprits: setup or programming not amortized per part, cycle time faster on paper than at the spindle, scrap and rework, and outside processing left out. If you quoted 28.4% but realized 21%, back-calculate the actual per-unit Cost from the job and compare each cost bucket to your estimate to find the leak.

Is margin calculated on price or cost?

Margin is always calculated on Selling Price: (Selling Price - Cost) / Selling Price. Markup is calculated on Cost: (Selling Price - Cost) / Cost. Same $2.70 profit on a $9.50 part is 28.4% margin but 39.7% markup. Because the denominator differs, margin is always the smaller percentage of the two. Mixing them up underprices the job every time.

What is the difference between gross margin and net margin?

Gross margin uses only direct per-unit Cost (material, labor, machine overhead, setup) and shows what a job contributes before indirect expenses. Net margin subtracts everything else: sales, admin, rent, quoting time, and unrecovered overhead. A part at 28.4% gross might net 8 to 12% after those. Use gross margin to compare jobs and net margin to judge whether the whole shop is profitable.

Cost and Quoting

Quote Margin Formula

Gross margin tells you what percentage of the selling price is profit after direct cost. Use it when building a quote, reviewing job profitability, or setting pricing targets across a product line.

Formula

Gross Margin (%) = (Selling Price - Cost) / Selling Price x 100

Variables

Selling Price: Price charged to the customer per unit
Cost: Total manufacturing cost per unit including material, labor, overhead, and setup

Understanding the Quote Margin Formula

Gross margin measures how much of every dollar the customer pays stays with you after the direct cost of making the part. In the example, a $9.50 part costing $6.80 keeps $2.70, or 28.4%. That percentage is what covers everything the per-unit cost does not: sales, quoting labor, unabsorbed overhead, and profit. On the shop floor it is the fastest sanity check on whether a job is worth the machine time versus a job that pays better.

Pull Selling Price straight from the quote or PO line. Cost must be the fully loaded number: material, direct labor, machine overhead, setup amortized per part, and any secondary operations or outside plating. If setup is left out of Cost on a short run, margin reads high and the job loses money. Keep both values in the same currency and per-unit basis. Margin is dimensionless, so a $/part or $/lot basis both work as long as price and cost match.

Job shops typically target 25 to 40% gross margin on machined parts, higher on complex low-volume work and lower on commodity high-volume runs. Below roughly 20% you have little cushion for scrap or a blown estimate. If a quote comes back at 28.4% and your floor is 30%, either trim cost or raise price by the gap. Track realized margin against quoted margin per job; a persistent shortfall usually means underestimated setup or cycle time.

Worked Example

A part costs $6.80 to produce and sells for $9.50.

Margin = ($9.50 - $6.80) / $9.50 x 100
= $2.70 / $9.50 x 100
= 28.4%

Result: 28.4% gross margin

Common Mistake

Confusing margin with markup. A 28.4% margin is not the same as a 28.4% markup. Markup is calculated on cost (profit / cost), while margin is calculated on price (profit / price). Using markup percentages to hit a margin target will underprice the job.

Frequently Asked Questions

What is the quote margin formula?: Gross Margin (%) = (Selling Price - Cost) / Selling Price x 100. Selling Price is what the customer pays per unit and Cost is the fully loaded per-unit manufacturing cost including material, labor, overhead, and setup. For a part costing $6.80 that sells for $9.50, margin is ($9.50 - $6.80) / $9.50 x 100 = 28.4%. The result is the share of the price that is profit before indirect costs.
How do I calculate the selling price to hit a target margin?: Rearrange the formula: Selling Price = Cost / (1 - target margin). To get 35% margin on a $6.80 cost, divide by (1 - 0.35): $6.80 / 0.65 = $10.46. Do not multiply cost by 1.35; that gives a markup, not a margin, and leaves you at only 26% margin. Always divide by one minus the decimal margin.
What is a good gross margin for a CNC job shop?: Most machine shops target 25 to 40% gross margin per part. Complex, low-volume, tight-tolerance work supports 40% or more, while high-volume commodity parts often run 15 to 25%. Below 20% there is little room for scrap or estimating error. The 28.4% in the example is a healthy production number but thin if your realized margins routinely erode 5 points from rework.
Why is my quoted margin higher than my actual margin?: The gap almost always comes from Cost being understated at quote time. Common culprits: setup or programming not amortized per part, cycle time faster on paper than at the spindle, scrap and rework, and outside processing left out. If you quoted 28.4% but realized 21%, back-calculate the actual per-unit Cost from the job and compare each cost bucket to your estimate to find the leak.
Is margin calculated on price or cost?: Margin is always calculated on Selling Price: (Selling Price - Cost) / Selling Price. Markup is calculated on Cost: (Selling Price - Cost) / Cost. Same $2.70 profit on a $9.50 part is 28.4% margin but 39.7% markup. Because the denominator differs, margin is always the smaller percentage of the two. Mixing them up underprices the job every time.
What is the difference between gross margin and net margin?: Gross margin uses only direct per-unit Cost (material, labor, machine overhead, setup) and shows what a job contributes before indirect expenses. Net margin subtracts everything else: sales, admin, rent, quoting time, and unrecovered overhead. A part at 28.4% gross might net 8 to 12% after those. Use gross margin to compare jobs and net margin to judge whether the whole shop is profitable.