ListoTradesMarkup and margin are not the same
Markup is the profit as a percentage of your cost. Margin is the profit as a percentage of the price. They use the same dollars of profit, but divide by different numbers.
Example: a job costs you $1,000 and you add a 25% markup. The price is $1,250 and your profit is $250. Your markup is 250 ÷ 1,000 = 25%, but your margin is 250 ÷ 1,250 = 20%.
The formulas
- Price with a markup: cost × (1 + markup). $1,000 × 1.25 = $1,250.
- Price with a margin: cost ÷ (1 − margin). $1,000 ÷ 0.80 = $1,250.
- Markup: (price − cost) ÷ cost.
- Margin: (price − cost) ÷ price.
Why this mistake costs contractors money
Suppose you need a 25% margin to cover overhead and profit, but you add a 25% markup. You end up with a 20% margin: on $100,000 of jobs, that is $5,000 less than you planned. If you think in margins, convert them to markup with the table in the calculator before pricing your jobs.
Frequently asked questions
What markup should a contractor use?
It depends on your trade, your overhead and your market. Many small contractors mark up their total job cost by 20% to 50% to cover overhead (insurance, vehicle, office) and profit. Calculate your overhead first so you know the minimum you need.
Should I mark up materials?
Many contractors do, often 10% to 25%, because buying, picking up and handling materials takes time and money. Show it as part of your price rather than as a separate fee.
Can a margin be 100%?
No. A 100% margin would mean the job cost you nothing. Markup can be 100% or more (doubling your cost is a 100% markup, which is a 50% margin).