Calculating Manufacturing Margins
Margin is the percentage of revenue that's profit. Markup is the percentage you add on top of cost. They're related but different, and confusing them is one of the most common pricing mistakes in manufacturing. A 50% markup gives you a 33% margin, not 50%. If you quote jobs at "50% margin" but calculate it as markup, you're making 17% less than you think.
Margin vs markup
Margin = (Price - Cost) / Price. Markup = (Price - Cost) / Cost. If a job costs $100 and you sell it for $150: Margin = 33.3%, Markup = 50%. The industry standard in precision manufacturing is 30-45% margin on production work, with higher margins on prototypes and small runs.
Always track margin, not markup. Margin tells you what percentage of revenue is profit. Markup tells you what you added to cost. Margin is what pays the bills.
Improving margins without raising prices
Three levers: (1) Reduce setup time — setup is the biggest cost driver on small runs. Fixture improvements, standardized tooling, and program libraries pay for themselves fast. (2) Optimize material usage — reduce waste through better nesting, purchasing at better price breaks, and tracking actual consumption vs estimated. (3) Know your losers — track margins by job, by customer, and by part number. Stop accepting repeat work at prices that don't make money.
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