Markup vs. Margin: What Contractors Need to Know

Markup and margin both describe profit, but they measure it against different numbers. Mixing them up is one of the most common reasons a job earns less than planned.

Markup is a percent of cost

Markup tells you how much you add on top of what the job costs you.

Margin is a percent of price

Gross margin tells you what share of the customer's price is profit.

Why the same percent gives different prices

A 25% markup on a $10,000 job produces $2,500 of gross profit, which is only a 20% margin. To earn a 25% margin you need a 33.33% markup. The higher the percent, the wider the gap.

Converting between them

• 20% markup = 16.67% margin
• 25% markup = 20% margin
• 50% markup = 33.33% margin
• 25% margin = 33.33% markup
• 40% margin = 66.67% markup

Use one method, not both

Pick markup or margin for a given estimate and stay with it. Applying a markup and then also a margin target double-counts profit and overprices the job. In Built2Bid you choose one method per estimate, and the other number is shown for reference.

Gross profit is not net profit

Gross profit is price minus the direct costs you entered. Your overhead (office, vehicles, insurance, your own salary) still has to come out of it. If overhead is not entered as line items, make sure your markup or margin is high enough to cover it.

Sales tax is separate

Sales tax you collect is not revenue and should not be included in margin calculations. Compute your price first, then apply any tax that applies in your jurisdiction.