Markup vs Margin for Contractors: Which One to Use (With Examples)

One of the most common reasons good contractors stay barely profitable is simple arithmetic: they add a "20% markup" and believe they earn a 20% margin. They do not. Here is the difference, and how to use it.

The definitions

• Markup is the percentage you add to your cost. Selling price = cost × (1 + markup).
• Margin is the percentage of the selling price that is profit. Margin = (price − cost) ÷ price.

A worked example

Your cost on a job is $10,000. You apply a 25% markup, so you charge $12,500. Your profit is $2,500, but that is only 20% of $12,500. So a 25% markup is a 20% margin.

Conversion table

• 10% markup → 9.1% margin
• 20% markup → 16.7% margin
• 25% markup → 20% margin
• 33% markup → 25% margin
• 50% markup → 33% margin
• 100% markup → 50% margin

Which should you use?

Use margin to decide what you need: your overhead (truck, insurance, tools, admin, software, your own unpaid hours) is a percentage of revenue, so your target should be a margin. Use markup as the quick tool to apply on each line, once you know which margin you need.

Example: if overhead plus desired profit adds up to 30% of revenue, you need a 30% margin, which means a markup of 43% on cost (0.30 ÷ 0.70).

Common mistakes

• Forgetting overhead: markup is not profit. It must also pay for everything that is not on the job.
• Not marking up materials: you handle ordering, delivery, returns, storage and the risk of price changes.
• Charging the same markup on every job: risky or small jobs deserve more.
• Ignoring change orders: extras should carry the same margin as the original job.

Putting it into your quotes

Decide your target margin once, set your markup from it, and apply it consistently, not by gut feel job to job. For the full method of building a price from labour and materials, read how to price a job, and see how quoting software for general contractors applies markup automatically to every line.