Margin, markup, and the fee: three numbers to keep separate

Published by Federal Bid Partners LLC · October 26, 2026 · Pricing fundamentals

A price can look profitable because the spreadsheet uses markup while the owner is thinking about margin. Define both before setting a target. Markup is profit divided by cost. Margin is profit divided by selling price. Neither definition tells you whether your cost figure includes everything required to deliver the unit. Start with that boundary and label it clearly.

A fictional $100 example

Oak Supply sells an item for $100 with $70 of total modeled cost. Before any percentage fee, the $30 contribution is a 30% margin and approximately a 42.86% markup. The same transaction produces different percentages because the denominators differ. Do not compare one department's markup target with another department's margin target as if they measure the same thing.

Now assume a 0.75% fee on the selling price for illustration. GSA currently describes the MAS Industrial Funding Fee as 0.75% of reported sales unless otherwise stated in the solicitation. Confirm the actual fee and reporting treatment for your contract. In this simplified example the fee is $0.75, leaving $29.25 contribution and a 29.25% margin. GSA MAS and IFF information.

Test a discount

Oak offers a 10% discount, reducing the selling price to $90. Its modeled cost stays $70, and the example percentage fee becomes $0.675. Contribution falls to $19.325, or about $19.33 when displayed. That is approximately 21.47% of the $90 selling price. Revenue fell 10%, but contribution fell by roughly one-third because the underlying cost did not fall with it.

Keep full precision in calculations and round only the displayed results or the final values required by your actual pricing process. Repeated rounding at intermediate steps can create unexplained differences between the calculator, quote, and invoice. State whether your contribution includes overhead, warranty, freight, and sales effort so the result cannot be mistaken for accounting net income.

Calculate a target price carefully

For a model in which cost is fixed per unit, a fee is a percentage of revenue, and margin uses revenue as its denominator, the target selling price is cost divided by one minus fee rate minus target margin. With $70 cost, a 0.75% assumed fee, and a 25% target margin, the result is about $94.28. This is an internal scenario, not an approved Schedule price or a conclusion about market reasonableness.

• Define the unit and what its cost includes.
• Keep margin and markup in separate labeled fields.
• Verify the applicable fee base and rate.
• Compare contribution dollars before and after discount.
• Run a higher-cost case before approving a thin margin.

Finish with a decision note: proposed price, cost assumptions, discount authority, and remaining uncertainty. A clean numerical result supports a decision only when the people using it understand its limits. Revisit the model whenever the cost, unit, or commercial terms change.