In this guide
Markup is how much you add on top of your cost. Margin is how much of the selling price is profit. They use the same dollars but divide by different numbers, so the same job can have a 30 percent markup and a 23 percent margin at once. If you set out to make 30 percent and price by adding 30 percent to cost, you've come up short on every job you've sent.
The two formulas
Take a job that costs you $1,200 in materials and labor, priced at $1,560.
- Markup = profit ÷ cost = $360 ÷ $1,200 = 30%
- Margin = profit ÷ price = $360 ÷ $1,560 = 23.1%
To go from one to the other:
- Margin = markup ÷ (1 + markup)
- Markup = margin ÷ (1 − margin)
And the one that matters most when you price a job: price = cost ÷ (1 − the margin you want). For a 30 percent margin on $1,200 of cost, that's $1,200 ÷ 0.7 = $1,714.29.
Conversion chart
| Markup on cost | Margin on price |
|---|---|
| 10% | 9.1% |
| 20% | 16.7% |
| 25% | 20.0% |
| 30% | 23.1% |
| 42.9% | 30.0% |
| 50% | 33.3% |
| 66.7% | 40.0% |
| 100% | 50.0% |
Margin can never reach 100 percent. Markup can be any size, which is part of why it sounds bigger in conversation.
What the mix-up costs over a year
Say your jobs add up to $200,000 of cost in a year, and you want a 30 percent margin.
- Priced with a 30% markup: revenue $260,000, gross profit $60,000.
- Priced for a real 30% margin: revenue $285,714, gross profit $85,714.
The difference is $25,714 for the same work, the same hours and the same customers. It doesn't show up anywhere as a loss, just as a year that felt busier than the bank balance suggests.
Which one to use when
Price with margin. Your overhead, profit goals and financial statements all work in margin, because they're shares of revenue. When a bookkeeper says your gross margin is 28 percent, that's profit divided by sales.
Markup is fine for materials, if you know what it converts to. Many trades run a standard markup on materials (say 25 percent, a 20 percent margin) and price labor from an hourly rate. That works as long as you check the whole job's margin at the end, and not just the materials line.
Check the finished job, not only the estimate. Estimates hit the margin you planned. Jobs finish at the margin they actually made, after the extra trip, the part that was wrong, and the hour nobody wrote down. The job profit calculator shows a finished job's real margin in a few seconds. The labor cost calculator turns a wage and a target margin into a billing rate with the margin divided out correctly.
The trade pricing guides apply this to real jobs: electrical work, plumbing jobs, handyman jobs, landscaping and painting bids.
What did that job really make?Profit and margin for any job in seconds.FAQ
Is a 50% markup a 50% margin?
No. A 50 percent markup is a 33.3 percent margin. To earn a 50 percent margin you need a 100 percent markup, doubling your cost.
What is a good profit margin for a contractor?
It varies by trade and job size. Service work with small tickets often needs higher gross margins than large remodels, because the overhead per job is similar and the invoice is smaller. Track your own finished jobs to find the margin that actually covers your overhead and leaves profit.
How do I calculate markup from margin?
Divide the margin by one minus the margin. For a 25 percent margin: 0.25 ÷ 0.75 = 0.333, a 33.3 percent markup.
