Ask ten contractors what margin they work on and you'll get ten numbers, often with markup and margin used as if they meant the same thing. They don't, and the gap between them is real money.
The definitions
- Markup is profit as a percentage of cost: markup = (price − cost) ÷ cost.
- Margin is profit as a percentage of selling price: margin = (price − cost) ÷ price.
A job that costs $10,000 and sells for $12,000 has a 20% markup but only a 16.7% margin.
Why it matters
Overheads and targets are usually set as a share of revenue: "overhead runs at 15% of turnover, and we want 10% net." That is margin language. If you then add 25% to your costs and think you have hit a 25% margin, you have actually hit 20%, and your net profit may be half what you planned.
Conversion table
| Margin you want | Markup needed |
|---|---|
| 10% | 11.1% |
| 15% | 17.6% |
| 20% | 25.0% |
| 25% | 33.3% |
| 30% | 42.9% |
| 35% | 53.8% |
| 40% | 66.7% |
markup = margin ÷ (1 − margin) and margin = markup ÷ (1 + markup).
Markup on materials vs labour
Many trades mark up materials and labour differently. Materials often carry 10–25% to cover buying time, handling, waste and the risk of price rises. Labour is usually priced at a charge-out rate that already contains overhead and profit. TakeoffYard jobs follow that model: a markup percentage on materials, and labour at your hourly rate.
Overhead comes first
Gross margin is not profit. Your van, insurance, phone, software, accountant, tools, unpaid quoting time and office costs all come out of it. If overheads run at 12% of revenue and you work on a 15% gross margin, you are clearing about 3%. One bad job wipes that out.
Putting it into practice
- Work out your annual overhead and divide it by expected revenue. That gives your overhead percentage.
- Decide the net profit percentage you want.
- Add the two together. That is the gross margin you need.
- Convert it to a markup with the table above, and use that on your costs.
The markup & margin calculator converts both ways, and the hourly rate calculator builds your charge-out rate from your overheads.
This guide is general information for estimating. It is not engineering, legal or tax advice. Check local codes and your inspector for your project.