Pricing for any trade
Markup vs margin: the difference that eats contractor profit
Markup is what you add on top of cost. Margin is the share of the price you keep. Mix them up and every job comes in thinner than you planned.
Short answer: a 50% markup is a 33.3% margin, not 50%. To keep a 50% margin you need a 100% markup, which means charging double your cost.
Markup and margin calculator
Markup to margin chart
| Markup | Margin | Price on $100 of cost |
| 10% | 9.1% | $110 |
| 15% | 13% | $115 |
| 20% | 16.7% | $120 |
| 25% | 20% | $125 |
| 30% | 23.1% | $130 |
| 40% | 28.6% | $140 |
| 50% | 33.3% | $150 |
| 60% | 37.5% | $160 |
| 75% | 42.9% | $175 |
| 100% | 50% | $200 |
The formulas
- Markup = (price − cost) ÷ cost
- Margin = (price − cost) ÷ price
- Price from a markup = cost × (1 + markup)
- Price from a margin = cost ÷ (1 − margin). For a 30% margin, divide by 0.70.
- Markup to margin = markup ÷ (1 + markup)
- Margin to markup = margin ÷ (1 − margin)
Why it matters
Overhead and profit targets are usually set as a share of sales: "overhead runs 25% of revenue, and we want 10% profit." That is a margin. If you then add 35% to your costs thinking it covers both, you've only kept a 25.9% margin, and your profit is gone.
The fix is to decide the margin you need first, then price with the margin formula or the chart above.
Questions contractors ask
Should I mark up materials?
Most trades do. The markup pays for the time spent quoting, buying, picking up and warrantying parts, and for the parts that come back.
Should labor and materials use the same markup?
Not always. Many shops set labor from an hourly rate that already covers overhead and profit, then add a smaller markup to materials. Our hourly rate calculator works out the labor side.
Is gross profit the money I keep?
No. Gross profit is price minus job cost. Your truck, insurance, office and your own pay come out of it before anything is left over.