Guide
Markup vs margin: the complete contractor guide
Most contractors use these two terms interchangeably. They are not the same number. Confusing them is one of the most common reasons contractors underprice jobs and wonder where the profit went.
The core difference
Markup is calculated on cost. It answers: how much am I adding on top of what I paid?
Margin is calculated on revenue. It answers: of every dollar I collect, how much is profit?
Markup = Profit ÷ Cost × 100
Margin = Profit ÷ Revenue × 100
Same job, different numbers
Job cost: $10,000. You price it at $12,500.
Profit = $12,500 − $10,000 = $2,500
Markup = $2,500 ÷ $10,000 = 25%
Margin = $2,500 ÷ $12,500 = 20%
A 25% markup produces a 20% margin. These are not the same. If your target is a 25% margin and you use a 25% markup, you will miss your margin on every job.
The compounding cost of getting it wrong
On a $50,000 job with a 25% markup (thinking it is 25% margin):
Actual margin: 20%
Target margin: 25%
Revenue at correct pricing: $50,000 ÷ (1 − 0.25) = $66,667
Actual revenue: $62,500
Missed profit per job: $4,167
On 10 jobs per year, that is $41,670 in missing profit. Not from poor field execution — from a math error made at the estimating desk.
How to convert between them
If you know your markup and want the equivalent margin:
Margin = Markup ÷ (1 + Markup)
Example: 33.3% markup → 33.3 ÷ 133.3 = 25% margin
If you know your target margin and need the required markup:
Markup = Margin ÷ (1 − Margin)
Example: 25% margin → 25 ÷ 75 = 33.3% markup
Or use the direct pricing formula — the only formula you need for estimating:
Price = Cost ÷ (1 − Target Margin)
Example: $10,000 cost, 25% margin target
Price = $10,000 ÷ 0.75 = $13,333
Common markup-to-margin reference
| Markup | Actual Margin | Multiplier |
|---|---|---|
| 10% | 9.1% | 1.10× |
| 20% | 16.7% | 1.20× |
| 25% | 20.0% | 1.25× |
| 33.3% | 25.0% | 1.33× |
| 50% | 33.3% | 1.50× |
| 67% | 40.0% | 1.67× |
| 100% | 50.0% | 2.00× |
Which to use when
Use margin for financial planning, profit targets, and comparing your business performance to industry benchmarks. Margin is the number that tells you how healthy your business is.
Use markup only when a supplier or client relationship requires it, or when converting from a cost-plus contract. Always convert back to margin before evaluating whether a job is worth taking.
Run the correct math instantly
Margin Command converts your cost and target margin to the correct price in one step. No formula to remember.
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