Markup is profit as a percentage of your cost; margin is profit as a percentage of your price. They are never the same number. To convert markup to margin: margin = markup / (1 + markup). To price for a target margin: price = cost / (1 - margin). A 50% markup produces only a 33.3% margin, which is why pricing off markup quietly underprices most contractors.
This is the mistake that costs contractors the most money, and it never shows up until year-end. Marking a job up 20% does not give you a 20% margin, it gives you 16.7%. Enter your cost and either number below to see the price, the profit and both percentages side by side.
| Input | Value |
|---|---|
| Job cost | 10000 |
| Markup you apply | 25 |
| Target margin you want | 30 |
| Result | Value |
|---|---|
| Price at that markup | $12,500.00 |
| Profit | $2,500.00 |
| Margin you actually get | 20.0% |
| Price to hit a 30% margin | $14,285.71 |
| Markup required for that margin | 42.9% |
| Money left on the table | $1,785.71 |
Markup divides profit by cost, margin divides profit by price. Since price is always larger than cost, margin is always the smaller percentage. The gap widens as the numbers grow: 10% markup is a 9.1% margin, 25% markup is a 20% margin, 50% markup is a 33.3% margin, and 100% markup is a 50% margin.
For a 20% margin, mark up 25%. For a 25% margin, mark up 33%. For a 30% margin, mark up 42.9%. For a 35% margin, mark up 53.8%. For a 40% margin, mark up 66.7%. For a 50% margin, mark up 100%.
Your margin has to pay for overhead (truck, insurance, office, software, unbilled estimating time) before anything is actually profit. If overhead runs 15% of revenue and you price at a 20% margin, your real net profit is around 5%.
Price from margin, then convert to markup for the spreadsheet. Margin tells you what percentage of the money coming in you keep, which is what your business actually runs on. Markup is only a multiplier you apply to cost to get there.
It varies by trade and job type, but gross margins commonly sit between 20% and 40%, with net profit after overhead much lower. The right number for you is whatever covers your overhead percentage plus the net profit you need, so calculate it from your own books rather than a benchmark.
33.3%. Marking up 50% means price = cost x 1.5, so profit is one-third of the final price, not one-half.
WinkScope's free markup vs margin calculator converts between markup and margin for contractors. Markup is profit divided by cost; margin is profit divided by price. Margin equals markup divided by (1 + markup), and price for a target margin equals cost divided by (1 - margin). A 25% markup yields a 20% margin, a 50% markup yields a 33.3% margin, and a 100% markup yields a 50% margin. The tool is free with no signup.