Markup vs. margin for contractors
Understand the difference between markup and profit margin, with contractor formulas and worked pricing examples.
In short
Markup measures profit against cost; margin measures profit against selling price. A 50% markup does not create a 50% margin. If a job costs $600 and sells for $900, the markup is 50% but the margin is 33.3%.
Markup and margin answer different questions
Markup asks how much you added on top of cost to reach the price. Margin asks what percentage of the selling price remains after those costs. Contractors often use markup while building a quote and margin while judging the finished job.
Markup
profit ÷ cost × 100
Margin is profit ÷ selling price × 100.
The $600 cost and $900 price example
A job with $600 of total direct cost and a $900 price produces $300 of profit. That $300 is half of the $600 cost, so markup is 50%. But it is only one third of the $900 selling price, so margin is 33.3%.
| Measure | Calculation | Result |
|---|---|---|
| Profit | $900 − $600 | $300 |
| Markup | $300 ÷ $600 | 50.0% |
| Margin | $300 ÷ $900 | 33.3% |
Common markup-to-margin conversions
The gap grows as the percentage rises. Treating markup and margin as interchangeable can leave much less room than the quote was supposed to create.
| Markup on cost | Equivalent margin on price |
|---|---|
| 10% | 9.1% |
| 25% | 20.0% |
| 50% | 33.3% |
| 75% | 42.9% |
| 100% | 50.0% |
Price from a target margin
When the goal is a specific profit margin, do not simply multiply cost by that percentage. Divide total cost by one minus the target margin. With $600 of cost and a 30% target margin, the required selling price is $857.14—not $780.
Price for a target margin
total cost ÷ (1 − target margin as a decimal)
$600 ÷ (1 − 0.30) = $857.14.
Use complete costs before either formula
Perfect arithmetic cannot rescue an incomplete cost number. Include owner labour, helper labour, materials, travel, fees, and every other direct job cost before adding markup or solving for a target margin.
After the work is done, calculate margin again using actual costs and collected revenue. That closes the loop between the quote you intended and the result the job delivered.
Calculate cash and projected job profit for free.