The one-sentence version
Markup is a percentage of what the job costs you. Margin is a percentage of what the customer pays. Same dollars of profit, two different percentages — and margin is always the smaller of the two.
Example
A job costs you $5,000. You add 35% markup, so you quote $6,750. Your profit is $1,750. That's a 35% markup — but only a 25.9% margin, because $1,750 divided by $6,750 is 25.9%.
Why it matters on real jobs
If someone tells you the trade "runs 50% margin" and you go add 50% markup, you're landing at 33% margin — a third less profit than you thought you were pricing for. Run that gap across a year of jobs and it's the difference between a healthy business and one that's busy and broke.
It also compounds in the wrong direction. Overhead, truck payments, insurance, and the hours you spend quoting all come out of margin, not markup. If margin is thinner than you assumed, overhead eats it first and what's left over is your pay.
The formulas
- Price from markup: Price = Cost × (1 + Markup%)
- Margin from price: Margin% = (Price − Cost) ÷ Price
- Price from the margin you actually want: Price = Cost ÷ (1 − Margin%)
That third one is the useful one. Decide the margin you need to keep the lights on, then work backwards to the price. Don't guess at a markup and hope.
Markup to margin, at a glance
| Markup | Margin | Price on a $5,000 job |
|---|---|---|
| 10% | 9.1% | $5,500 |
| 20% | 16.7% | $6,000 |
| 30% | 23.1% | $6,500 |
| 40% | 28.6% | $7,000 |
| 50% | 33.3% | $7,500 |
| 67% | 40.0% | $8,350 |
| 100% | 50.0% | $10,000 |
Check your own numbers
Put in a real job cost and the markup you'd normally add. The calculator shows the price, the profit, and the margin that markup actually produces.
Markup & Margin Calculator
Enter your job cost and the markup you plan to add. The calculator shows your price, your profit, and the margin that markup actually produces.
- Price to quote
- $6,750
- Gross profit
- $1,750
- Gross margin
- 25.9%
Notice the gap: a 35% markup is only a 25.9% margin. Markup is calculated on your cost. Margin is calculated on the price the customer pays. They are never the same number.
Three habits that protect margin
- Quote from cost, not from the last guy's price. Your costs aren't his costs. Price the job in front of you.
- Put overhead in the number, not in your head. Insurance, fuel, software, and unbilled quoting hours are real costs on every job.
- Answer faster than the competition. Margin also dies from discounting to win work you were slow to respond to. The contractor who replies first usually doesn't have to be the cheapest.
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