Markup vs margin for contractors
Markup is a percentage added on top of your cost. Margin is the share of the final price that is profit. They are not the same number, and mixing them up is the commonest reason a busy contractor is short at year end.
A job costs you $1,000 and you add 25%: the price is $1,250 and the profit is $250. But $250 is 20% of $1,250, so a 25% markup is a 20% margin. If your plan needs a 25% margin, the price is $1,000 ÷ (1 − 0.25) = $1,333.33, which is a 33.3% markup.
Formulas
- Price from cost and margin:
price = cost ÷ (1 − margin) - Price from cost and markup:
price = cost × (1 + markup) - Margin from markup:
margin = markup ÷ (1 + markup) - Markup from margin:
markup = margin ÷ (1 − margin)
Margin you want → markup you need
| Target margin | Markup on cost | Price on $100 cost |
|---|---|---|
| 10% | 11.1% | $111.11 |
| 15% | 17.6% | $117.65 |
| 20% | 25.0% | $125.00 |
| 25% | 33.3% | $133.33 |
| 30% | 42.9% | $142.86 |
| 35% | 53.8% | $153.85 |
| 40% | 66.7% | $166.67 |
| 50% | 100.0% | $200.00 |
Markup you apply → margin you get
| Markup | Real margin | Price on $100 cost |
|---|---|---|
| 10% | 9.1% | $110.00 |
| 15% | 13.0% | $115.00 |
| 20% | 16.7% | $120.00 |
| 25% | 20.0% | $125.00 |
| 30% | 23.1% | $130.00 |
| 40% | 28.6% | $140.00 |
| 50% | 33.3% | $150.00 |
| 100% | 50.0% | $200.00 |
Which cost to apply it to
Apply the margin to your full cost: labor with payroll burden, materials with the waste you buy, subcontractors, equipment, a contingency, and your share of overhead. Applying it to materials alone, or to wages without burden, leaves overhead unpaid, so the margin you quote is not the margin you keep. The calculator does the whole chain and shows the walk-away price.
Common questions
Is a 25% markup the same as a 25% margin?
No. A 25% markup on a $1,000 cost prices the job at $1,250, and the $250 profit is only 20% of that price, so a 25% markup is a 20% margin.
How do I price a job for a target margin?
Divide your full cost by one minus the margin. For a $1,000 cost and a 25% margin the price is $1,000 ÷ (1 − 0.25) = $1,333.33, which is a 33.3% markup on cost.
Which cost should the margin apply to?
Your full cost: labor with payroll burden, materials with the waste you buy, subcontractors, equipment, a contingency and your share of overhead. Applying it to materials alone leaves overhead unpaid.