Markup versus margin
- Markup = (price minus cost) divided by cost.
- Margin = (price minus cost) divided by price.
The two use the same profit but divide by different numbers, so the margin is always lower than the markup. MetaFleet's parts guide gives the example that a 30 percent markup is a 23.1 percent margin.
Example only
Illustrative numbers: a part costs the shop 100 dollars. With a 30 percent markup, the price is 130 dollars. The profit is 30 dollars, which is 30 percent of cost but about 23.1 percent of the price. Confusing the two is a common way to underprice parts.
Why shops mark up parts
Parts are not free to handle. The shop sources the right part, orders it, receives it, stores it, sometimes holds it for days, handles returns and cores, and stands behind it if it fails early. Markup pays for that work and the cash tied up in inventory. See core charge and core return.
Common approaches
- Flat markup. One percentage on everything. Simple, but it can overprice expensive parts and underprice cheap ones.
- Markup matrix. A higher percentage on low-cost parts and a lower percentage on high-cost parts.
- Cost-plus for fleets. A fixed, agreed markup on cost for contract customers, often with invoices showing cost.
- List price. Selling at the supplier's list price.
See how to set parts markup for a diesel shop.
Disclosure
Customers see the part price, and some fleet contracts require cost-plus terms with proof of cost. Whatever method is used, keep it consistent and in writing.
Related: parts line, special order part, purchase order.
MetaFleet supports parts inventory, purchase orders and invoicing. Get a walkthrough.