Contractor Markup vs. Margin: The Math That Trips Crews Up

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.