Markup vs. margin calculator for contractors

Markup and margin are not the same number, and mixing them up is the most common way a contractor underprices a job. Enter your cost and either a markup or a target margin. You get the price to charge, the profit in dollars, and what that markup really is as a margin.

The difference in one example

A job costs you $10,000 in materials, labor and subs. You add 35 percent and charge $13,500.

• Markup is profit divided by cost: $3,500 ÷ $10,000 = 35%.
• Margin is profit divided by price: $3,500 ÷ $13,500 = 25.9%.

Same job, same dollars, two different percentages. If your accountant says the business needs a 35 percent gross margin to cover overhead and leave a profit, a 35 percent markup leaves you nine points short on every job. To actually hold a 35 percent margin on that job, you charge $15,385, which is a 53.8 percent markup.

The formulas

• Price from a target margin: cost ÷ (1 − margin)
• Price from a markup: cost × (1 + markup)
• Markup needed for a margin: margin ÷ (1 − margin)
• Margin you get from a markup: markup ÷ (1 + markup)

Markup to margin table

Why margin is the number to manage

Overhead is paid out of sales, so it is naturally a percentage of price, not of cost. If rent, trucks, insurance, the office and your own salary run 22 percent of revenue, every job has to clear a 22 percent margin just to break even. Enter your overhead above and the calculator shows what is left after it.

The other reason is discounts. Knock 10 percent off a job priced at a 25 percent margin and you have given away 40 percent of the profit, not 10.