Markup vs margin for DMCs: a worked example on a 9-night package
Markup is profit over cost; margin is profit over the selling price. A 25% markup is a 20% margin. A worked 9-night package, conversion tables and the commission trap.
Bharat · Co-founder, Totem
4 min read
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In short
- Markup is profit as a share of cost; margin is profit as a share of the selling price. A 25% markup is a 20% margin.
- To hit a target margin, divide total cost by (1 − margin). For a 20% margin, divide by 0.80.
- On our worked 9-night Japan package, markups of 18% to 35% still produce a blended margin of only 16.3%.
- A 10% agent commission taken from the selling price cuts that same trip to a 6.3% margin.
Markup is profit as a percentage of cost. Margin is profit as a percentage of the selling price. A 25% markup gives you a 20% margin, not 25%. The gap grows as the numbers grow, and on a multi-component package with different markups per supplier, many teams genuinely don't know their margin until the trip is over.
What is the formula for markup and margin?
| Formula | Example (cost €100, sell €125) | |
|---|---|---|
| Markup | (sell − cost) ÷ cost | 25 ÷ 100 = 25% |
| Margin | (sell − cost) ÷ sell | 25 ÷ 125 = 20% |
| Sell price from markup | cost × (1 + markup) | 100 × 1.25 = €125 |
| Sell price from margin | cost ÷ (1 − margin) | 100 ÷ 0.80 = €125 |
How do I convert markup to margin?
Margin = markup ÷ (1 + markup). Markup = margin ÷ (1 − margin).
| Markup | Equals margin of |
|---|---|
| 10% | 9.1% |
| 15% | 13.0% |
| 20% | 16.7% |
| 25% | 20.0% |
| 30% | 23.1% |
| 50% | 33.3% |
| Target margin | Markup needed |
|---|---|
| 10% | 11.1% |
| 15% | 17.6% |
| 20% | 25.0% |
| 25% | 33.3% |
| 30% | 42.9% |
| 35% | 53.8% |
A worked example: 9 nights in Japan for a family of four
Here's a realistic tailor-made trip: four travellers in two rooms, Tokyo, Hakone and Kyoto. Costs are net rates in euros. As most DMCs do, we apply a different markup to each kind of service, because hotels are price-compared and experiences are not.
| Component | Detail | Net cost | Markup | Sell price |
|---|---|---|---|---|
| Hotels | Tokyo 4n, Kyoto 3n (2 rooms each) | €4,840 | 18% | €5,711.20 |
| Ryokan | Hakone 2n (2 rooms) | €2,080 | 18% | €2,454.40 |
| Private guides | 3 full days at €450 | €1,350 | 30% | €1,755.00 |
| Transfers and rail | 2 airport transfers, rail for 4 | €1,760 | 12% | €1,971.20 |
| Experiences | Tea ceremony and cooking class for 4 | €600 | 35% | €810.00 |
| Total | €10,630 | €12,701.80 |
Gross profit is €2,071.80. Now the question that matters: what is the margin?
- Blended markup: 2,071.80 ÷ 10,630 = 19.5%
- Margin: 2,071.80 ÷ 12,701.80 = 16.3%
Even with markups of 18% to 35%, this trip earns a 16.3% margin, because two-thirds of the cost sits in hotels at the lowest markup. A team that says "we work on 20 to 30%" could be running at 16% without anyone noticing.
The per-person price is €3,175.45.
How do I price to a target margin?
Work backwards from the margin you need, not forwards from a habit:
- Decide the target margin for the whole trip, for example 20%.
- Divide total cost by (1 − margin): 10,630 ÷ 0.80 = €13,287.50.
- Spread the extra €585.70 where the market will bear it, usually experiences and guiding rather than hotels clients can look up.
The difference between 16.3% and 20% on this one trip is about €586. Across 200 similar trips a year, that's over €117,000.
The agent commission trap
If this trip is sold through a travel agent, the commission is usually taken off the selling price, not your profit, and it comes out of your margin.
At 10% commission on €12,701.80:
- Commission: €1,270.18
- Your remaining profit: 2,071.80 − 1,270.18 = €801.62
- Your margin: 801.62 ÷ 12,701.80 = 6.3%
A trip that looked healthy at 16% earns 6.3% once the agent is paid. If you sell through agents, either build the commission into the price (quote a gross rate with commission included) or give agents net rates and let them add their own markup. Decide which before you quote, not after.
Other things that eat margin
- Currency movement between quoting and paying suppliers. If you quote in euros and pay every supplier on this trip in yen, a 5% move costs about €530, a quarter of the profit.
- Card and bank fees, typically 1 to 3% of the selling price.
- Tax on margin. In the EU and UK, the Tour Operators' Margin Scheme taxes VAT on your margin rather than the full price, which changes what you keep. Check the rules for your country with your accountant.
- Changes after confirmation. An extra night or an upgrade re-costed in a hurry is where errors creep in.
How do I keep margins visible on every quote?
- Show cost, markup, sell and margin on every line, and the margin for the whole trip at the top. Most margin leakage is simply not being able to see it.
- Version every quote. When a client changes something, keep the previous version so you can see what moved.
- Tie each cost to its contract. Knowing which rate, season and supplier sits behind a number is what makes the price explainable when a client or your finance team asks.
You can do all of this in a well-built spreadsheet. We built costings in Totem around the same idea: every line keeps its contract, markup and currency, and the margin is visible as you quote.
Questions people ask
- Is a 20% markup the same as a 20% margin?
- No. A 20% markup gives a 16.7% margin. To earn a 20% margin you need a 25% markup.
- What margin should a DMC aim for?
- It varies widely by destination, client type and volume, so be wary of a single benchmark. What matters more is knowing your real blended margin after commissions, fees and currency, and pricing from a target rather than a habit.
- Should I use different markups for different services?
- Most operators do. Hotels and flights are easy for clients to compare, so they usually carry lower markups, while guiding, experiences and your planning expertise carry higher ones. Just make sure you check the blended margin across the whole trip.