Contractor Markup vs Margin: Conversion Chart and Examples

Markup and margin describe the same dollars from two directions, and confusing them is one of the most common reasons contractors undercharge. Markup is added to your cost; margin is the profit's share of the final price. A 20% markup is only about a 17% margin.

The definitions

• Markup = (price − cost) ÷ cost. If a job costs you $10,000 and you add $2,000, that is a 20% markup.
• Margin = (price − cost) ÷ price. That same job sells for $12,000, so the $2,000 profit is about 16.7% margin.

The conversion you need

To hit a target margin, divide by (1 − margin) instead of multiplying. For a 30% margin on a $10,000 cost: $10,000 ÷ 0.70 = $14,286, which is a 43% markup. If you had just added 30% markup, you would have priced at $13,000 and landed a 23% margin — well short.

Quick reference

• To get 20% margin: multiply cost by 1.25 (25% markup)
• To get 30% margin: multiply cost by 1.43 (43% markup)
• To get 40% margin: multiply cost by 1.67 (67% markup)
• To get 50% margin: multiply cost by 2.0 (100% markup)

What "cost" has to include

Direct labor, materials, subs, equipment, and the labor burden (payroll taxes, insurance, workers' comp, benefits). If your markup only covers materials and base wages, the margin is paying for your overhead and there is nothing left as profit. Load the cost correctly first, then apply markup.

Set one number and check it

Pick the markup multiplier that produces your target margin, apply it consistently, and then compare quoted margin to actual margin on completed jobs. If actuals come in low, your costs are understated or your production estimates are optimistic — fix the input, not just the markup.

Markup to margin conversion chart

Markup	Margin	Multiplier on cost
10%	9.1%	1.10
15%	13.0%	1.15
20%	16.7%	1.20
25%	20.0%	1.25
33%	25.0%	1.33
43%	30.0%	1.43
50%	33.3%	1.50
67%	40.0%	1.67
100%	50.0%	2.00

Formulas: margin = markup ÷ (1 + markup), and markup = margin ÷ (1 − margin). Use the free markup and margin calculator to run your own numbers.

Worked example: a deck job

Costs on a deck job: materials $6,000, labor with burden $5,000, permit and dumpster $500, for a total cost of $11,500. You want a 30% margin.

• Wrong: $11,500 × 1.30 = $14,950. Profit is $3,450, which is a 23% margin.
• Right: $11,500 ÷ 0.70 = $16,429. Profit is $4,929, which is a 30% margin.

The difference is almost $1,500 on one job. Across a year of jobs, that's the gap between a business that grows and one that stays busy but broke.

Where overhead fits

Overhead, meaning rent, trucks, insurance, office staff, software and marketing, has to be recovered somewhere. Some contractors include an overhead percentage in job cost before applying a profit margin. Others set a single margin high enough to cover both. Either works if you know your overhead as a percentage of revenue. See average contractor profit margin by trade.

Frequently asked questions

What is a good markup for contractors?

It depends on your overhead, trade and market. Work back from the margin you need to cover overhead and profit, then convert it to a markup with the formula above.

Is a 20% markup the same as a 20% margin?

No. A 20% markup gives about a 16.7% margin. To get a 20% margin, you need a 25% markup.

Should I mark up materials and labor differently?

Many contractors do, for example a separate markup on materials and a labor rate that already includes overhead and profit. What matters is that the total job price hits your target margin.