Markup vs Margin for Contractors
Markup and margin both describe profit, but they measure it against different numbers. Mixing them up is one of the most common reasons a contractor's year-end profit is lower than planned.
The two definitions
- Markup = profit ÷ cost. It answers "how much did I add on top of what the job cost me?"
- Margin = profit ÷ price. It answers "how much of what the customer paid did I keep?"
Example: the same job, two percentages
| Job cost (materials, labor, overhead) | $1,000.00 |
| Add a 30% markup: $1,000 × 1.30 | $1,300.00 |
| Profit | $300.00 |
| Margin: $300 ÷ $1,300 | 23.1%, not 30% |
| Price for a true 30% margin: $1,000 ÷ 0.70 | $1,428.57 (profit $428.57) |
On this one job, thinking "30%" but applying it as markup leaves $128.57 on the table.
Conversion chart
| Target margin | Markup needed |
|---|---|
| 10% | 11.1% |
| 15% | 17.6% |
| 20% | 25.0% |
| 25% | 33.3% |
| 30% | 42.9% |
| 35% | 53.8% |
| 40% | 66.7% |
| 50% | 100.0% |
Formulas: markup = margin ÷ (1 − margin); margin = markup ÷ (1 + markup).
Which one should you use?
Set your goal as a margin, because overhead and profit targets are usually stated as a share of revenue. Then price every job with: price = total cost ÷ (1 − target margin). Make sure "total cost" includes overhead and your true labor cost, not just wages (see the labor burden calculator).
Convert any number instantly with the free markup vs margin calculator, or follow the full method in how to price a contractor job.
Want it built into your quotes?
The Contractor Quote & Margin Sheet prices each job from your target margin in Google Sheets or Excel, and shows what a discount does to your profit before you send the quote.
Figures are illustrative estimates for planning only. This is not accounting, tax or legal advice.