Markup vs margin: pricing supplier trade lists without losing money

A dealer buys at trade, usually the manufacturer’s list price less a discount, and sells at something higher. On a quote, a person does that sum once for one customer. A website has to do it for every line in the catalogue at once (say 5,000 products from a handful of suppliers), then do it again, correctly, every time a supplier changes its costs. Get the formula slightly wrong and it is wrong five thousand times.

Disclosure: we build Orbit Commerce, whose pricing rules come up near the end, so we have a stake in this. The arithmetic before that applies whatever you sell on. Outside facts carry a link and the date we checked them.

What is the difference between markup and margin?

Both describe the same profit, measured against different things. Markup is profit as a share of what you paid. Margin is profit as a share of what you sold for. Work both ex VAT, because the VAT is not yours.

• Markup is profit divided by cost. Buy a chair at £100, sell it at £140: profit £40, markup 40%.
• Margin is profit divided by selling price. The same chair: £40 ÷ £140 is a 28.6% margin.
• Price from a markup is cost × (1 + markup). £100 × 1.40 = £140.
• Price from a margin is cost ÷ (1 - margin). For a 35% margin, £100 ÷ 0.65 = £153.85.

Here is what the confusion costs. Say you buy a task chair at £212 and the business “works on 35%”, meaning margin. Priced properly, that is £212 ÷ 0.65 = £326.15. If whoever set up the website applied 35% as a markup, it sells at £212 × 1.35 = £286.20: £39.95 less per chair, and a real margin of 25.9%. Sell 200 a year (our assumption) and that is £7,990 gone without anyone noticing.

How do you convert markup to margin?

Margin = markup ÷ (1 + markup). Markup = margin ÷ (1 - margin). Or use the table, which we worked out and then checked a second time. Do the same with your own spreadsheet: one wrong cell gets copied into thousands of prices.

The two to remember: a 25% margin needs a 33.3% markup, and a 75% markup is only a 42.9% margin. A margin can never reach 100%; a markup can be anything.

How do list-less-discount price structures work?

In furniture especially, everything hangs off a published list price. Zigaflow, which makes quoting software for commercial furniture dealers, puts it plainly: “Commercial furniture pricing is built on list price”, and the dealer’s gross margin is the gap between the discount it gets and the discount it gives, often across schedules from eight to twelve manufacturers at once (zigaflow.com, published 9 July 2026, checked 29 October 2026).

A worked example, with made-up terms. List price £500. You buy at list less 55%, so £225. You sell at list less 30%, so £350. Profit £125: a 35.7% margin, or a 55.6% markup. The shortcut is margin = 1 - (1 - buy discount) ÷ (1 - sell discount), here 1 - 0.45 ÷ 0.70.

Now give away five more points: list less 35% is £325, and profit drops to £100. Five points of list cost you a fifth of the gross profit. Zigaflow says reviews of sales teams commonly find “realized discounts running ten to fifteen percent above the intended ceiling”. A website at least gives the same discount every time.

The trap online is a single “list less 30%” across every brand. If your terms on a second brand are list less 45%, you buy that £500 item at £275, sell at £350, and make a 21.4% margin, not 35.7%. Either set the sell-side discount brand by brand, or price from your real net cost with a margin rule, which keeps the margin steady whatever the list says. Check which price your supplier’s data carries, list or your net, before you build anything: we cover that in getting supplier catalogues onto your website.

Should trade buyers see prices ex VAT and consumers inc VAT?

Usually, yes. UK VAT is 20% standard, 5% reduced and 0% zero (gov.uk, checked 29 October 2026). Most of what an office dealer sells sits at 20%, which gov.uk describes as “most goods and services”, but check the edges: its detailed list puts books and brochures at 0% while exercise books and letterheads are standard-rated (gov.uk, checked 29 October 2026).

For display, the Price Marking Order 2004 applies to goods sold by traders to consumers, and where goods are offered to consumers the price must include VAT (Business Companion, Trading Standards guidance last reviewed April 2026, checked 29 October 2026). A trade-only site can show ex VAT prices. A site anyone can buy from should show inc VAT, with ex VAT alongside or a switch for trade buyers. Our UK VAT guide for online sellers covers registration and the rest.

VAT also changes how you round. Say a rule gives £187.40 ex VAT. Round that to .99 and add VAT and a consumer sees £225.59. Add VAT first, £224.88, then round, and they see £224.99 (£187.49 ex VAT). Round on the price your customer actually reads: inc VAT for the public, ex VAT for trade.

Should you round to .99, .95 or whole pounds?

• .99 or .95 suit consumer-facing lines: chairs for home workers, accessories, consumables.
• Whole pounds, or the nearest £5, suit big-ticket and project items. A trade buyer reads £1,249 more easily than £1,248.37.
• Direction matters. Snapping to the .99 of the same pound turns £24.10 into £24.99, an extra 89p, but snapping to .95 turns £24.97 into £24.95. Over thousands of lines, rounding up rather than down is a quiet margin gain, and rounding down on cheap lines can wipe out a thin one.

Make rounding the last step of the rule, after any VAT, so nothing undoes it.

Should every product carry the same markup?

Almost never. Cheap items carry fixed costs per order (picking, packing, and a card fee that is usually a percentage plus a fixed amount), and big tickets get compared on price. A sensible rule set for a mixed dealer might look like this. The figures are assumptions to show the shape, not advice on your margins.

Order matters: in most rule systems the first matching rule wins, so specific rules go above general ones and the catch-all goes last. On fixed fees, a 25p charge per payment is 2.5% of a £10 order and 0.1% of a £250 one. Trade buyers often pay by business card, which costs more to take: on Orbit Payments’ published rates, a UK business or corporate card is 3.3% + 25p on the Solo plan against 2% + 25p for a UK personal card (payments).

What should happen when a supplier raises prices?

There are two approaches, and most dealers want both at different times.

• Review. Cost changes queue up showing the old and new figures, and you accept them. Right for a new supplier, the annual list price change, and any time you have just edited your rules.
• Auto-accept. New costs run straight through your rules and selling prices follow. Right once you trust the rules and have a catch-all. Remember it works both ways: when a cost falls, so does your price. If you would rather keep that gain, review instead.

One more check. A good system leaves prices you typed by hand alone when costs change. That protects deliberate prices, but it also means a cost rise can push a hand-set price below cost. After every increase, filter for hand-set prices and look at them.

How do you protect margin on carriage?

Delivery is where furniture margin leaks. Zigaflow notes freight is “routinely quoted as a fixed allowance” while the actual charges can include surcharges and split deliveries (zigaflow.com, checked 29 October 2026).

If a supplier delivers direct to your customer, its carriage terms are set at trade value. Suppose it delivers free on orders over £500 trade. At a 40% markup, £500 of trade is £700 of your selling price. Advertise “free delivery over £500” and every order between £500 and £700 costs you carriage. Set your threshold at £700, or absorb it knowingly. Charge two-person delivery and installation as their own lines, and use postcode rules for the Highlands, islands and Northern Ireland. More in office furniture delivery and installation charges.

How does Orbit turn supplier costs into selling prices?

On every plan, each supplier connection carries its own pricing rules:

• Steps: percentage markup, percentage margin (a true margin on the selling price), percentage discount, or a fixed amount added or taken off, then rounding to .99, .95, or up, down or to the nearest increment such as £1 or £5.
• Matching: by brand, category or cost band, checked top to bottom with the first match winning. Each rule shows what a sample cost becomes and how many products it prices, and you are warned when products match no rule, because they would keep the supplier’s cost as their selling price.
• Your real trade terms: a cost step records what you actually pay (for example, the supplier’s price less your discount), which purchase orders use, and the selling price can start from that cost or from the supplier’s price.
• VAT: for a store whose prices include VAT, a switch adds each product’s own rate, 20%, 5% or 0%, once after your rules and before rounding. Your store can display prices ex VAT or inc VAT, with a switch shoppers can use.
• Price rises: cost changes wait in an Updates inbox or are auto-accepted, your choice per supplier, and prices you set by hand stay as they are.

Delivery has the same tools: shipping classes, conditional rates and postcode rules, and you can import a supplier’s published delivery rules into your own zones, lifting free-delivery thresholds by how far your prices sit above trade and adjusting charges by a percentage. If you also want each trade customer to see their own negotiated prices, per-company price catalogues are part of B2B on the Enterprise plan (£999 a month, or £749 billed yearly, ex VAT). How the whole flow works is on dropshipping and supplier connections and Orbit for office furniture dealers; plans start at £25 a month ex VAT on pricing.

Questions people ask about markup and margin

What is a 25% margin as a markup?

33.3%. Divide the margin by one minus the margin: 0.25 ÷ 0.75 = 0.333. On a £100 cost you sell at £133.33 ex VAT and keep £33.33, which is 25% of the selling price.

What margin is a 75% markup?

42.9%. Divide the markup by one plus the markup: 0.75 ÷ 1.75 = 0.429. A £100 cost sells at £175, and the £75 profit is 42.9% of that.