GUIDE
Markup vs Margin for Contractors: Formulas, Conversion Table, Examples
Updated
Markup is profit divided by cost. Margin is profit divided by the price you charge. Same dollars of profit, different percentages. Mix them up and you end up with less profit than you planned.
The two formulas
- Markup % = (price - cost) / cost x 100
- Margin % = (price - cost) / price x 100
If a job costs you $1,000 and you charge $1,250, your profit is $250. Markup is 250 / 1,000 = 25%. Margin is 250 / 1,250 = 20%.
Markup to margin conversion table
| Markup | Margin |
|---|---|
| 10% | 9.1% |
| 25% | 20% |
| 33% | 25% |
| 50% | 33% |
| 100% | 50% |
To go from markup to margin, divide markup by (1 + markup). To go the other way, divide margin by (1 - margin).
The mistake that costs contractors money
Say you want a 30% margin and you add 30% to your costs. On a $10,000 cost that’s a $13,000 price. Your profit is $3,000, which is a 23% margin, not 30%. To really hit 30% margin you need a 43% markup, so the price is $14,286.
Use markup to build a price from costs. Use margin to see how much of each sales dollar you keep.
Overhead example
Direct costs for a bathroom job: $8,000 (labor, materials, subs). Your overhead (truck, insurance, phone, software, office time) runs about 15% of revenue, and you want 10% profit.
Overhead plus profit is 25% of the price, so direct costs are 75% of it. Price = $8,000 / 0.75 = $10,667. That’s a 33% markup on direct costs. If you had added 25% instead, you’d have quoted $10,000, which is only a 20% margin, and overhead and profit together would come to 20%, not 25%.
Which one should you quote with?
Most contractors price with markup because it’s easy: cost times a number. Convert to margin before you send the estimate, just to check. Our percentage calculator does the arithmetic, and a good estimate template shows where markup goes. When the job is done, the same numbers drop straight into an invoice.
Frequently asked questions
What is the difference between markup and margin?
Markup is profit as a percentage of your cost. Margin is profit as a percentage of the selling price. The same job always has a lower margin than markup.
How do I turn a margin into a markup?
Divide the margin by (1 minus the margin). A 25% margin is 0.25 / 0.75, which is a 33.3% markup.
Is a 50% markup the same as a 50% margin?
No. A 50% markup gives you a 33.3% margin. To get a 50% margin you need a 100% markup, which means you charge double your cost.
What markup should a contractor use?
It depends on your overhead and trade. Work backwards: add up your yearly overhead, decide on a profit target, and pick the markup that covers both. Many contractors find that markup on direct costs has to be well above their overhead percentage.
Should overhead be part of cost?
Either works, but be consistent. Many contractors price direct costs (labor, materials, subs), then add overhead and profit on top. Forgetting overhead is the most common reason jobs lose money.