Margin vs. markup — the mix-up that costs money
Margin and markup describe the same profit from two directions, and confusing them leads to underpricing. Margin is profit as a share of the price: $1,000 profit on a $3,000 project is a 33% margin. Markup is profit as a share of the cost: that same $1,000 on $2,000 of costs is a 50% markup. A '30% markup' produces only a 23% margin — so a freelancer who wants 30% margins but applies 30% markup is leaving money on every job.
If you target a margin, work backwards from it: price = costs ÷ (1 − target margin). For a 40% margin on $1,800 of costs, that's $1,800 ÷ 0.6 = $3,000 — not $1,800 × 1.4 = $2,520.
Profit per hour is the number that compares projects
Two projects with identical margins can pay you wildly differently per hour of your life. A $6,000 project at 50% margin that consumes 100 hours pays $30/hour; a $2,000 project at the same margin done in 15 hours pays $67. Margin tells you whether the pricing covered costs; profit per hour tells you which kinds of work deserve more of your calendar.
Review both numbers after every project and patterns emerge fast: certain clients, deliverables, or industries consistently sit at the top of the profit-per-hour table. The strategy writes itself — do more of those, raise prices on the rest, and let the bottom of the table go.
Frequently asked questions
- What's a good profit margin for freelance work?
- Because your labor is the main input, freelance margins should be high — 70–90% on projects with minimal hard costs. If subcontractors or materials are involved, 30–50% on the project as a whole is a healthy range. Margins below 20% usually mean the price didn't reflect the real costs.
- What counts as a direct cost?
- Anything you spent specifically to deliver that project: subcontractors, stock assets, fonts or plugins bought for it, project-specific software, printing, travel. General overhead (your laptop, office, annual subscriptions) belongs in your overall pricing, not in a single project's costs.
- Should I count my own hours as a cost?
- Not in this calculation — your time is what the profit pays for. That's exactly why profit per hour is shown: it's the wage your profit works out to, and it should comfortably beat the rate you could earn elsewhere.