PRICING
Markup vs. Margin for Contractors: Know the Difference Before You Price a Job
Understand the difference between markup and profit margin, why the two numbers are not interchangeable, and how to use each one when you price a job.
Markup and margin both describe the money you add to a job, but they are not the same number. Adding 25% to your cost does not give you a 25% profit margin. This guide explains the difference with real math, shows you when to use each one, and lets you try both calculators right here.
Why the two numbers confuse so many contractors
The confusion is simple to explain: markup uses your cost as the base, while margin uses the selling price as the base. Because the bases are different, the same profit produces two different percentages depending on which one you quote.
Markup is the percentage you add on top of a job cost. Margin is the percentage of the final selling price that ends up as profit. A $2,000 profit on a $10,000 job is a 20% markup on cost, but only a 16.7% margin because $2,000 is 16.7% of the $12,000 price.
Markup: adding a percentage on top of your cost
When you say “I price my jobs at 25%,” you are usually describing markup. You take the complete job cost, multiply it by the markup percentage, and add that to the cost to get your selling price.
Markup is the easiest way to price when you think in terms of cost: materials, labor, subs and overhead all flow into a total, and you add a percentage on top. Try it with your own numbers below.
Margin: the share of the selling price you keep
Margin answers a different question: after the customer pays, what percentage of that payment is profit? To make a 25% margin on a $10,000-cost job, you cannot simply add $2,500 — you need a price high enough that $2,500 is 25% of the price, which means a $13,333 selling price.
Margin is the number to watch when you want to talk about profitability in terms of sales, which is how many businesses and lenders measure success. Use the margin calculator to find the price that hits your target.
The markup-to-margin math you cannot skip
If your pricing is based on cost but you aim for a margin, you need the equivalent markup. The formula is markup = margin ÷ (1 − margin). The wider the margin you chase, the bigger the jump between the two numbers.
- 20% margin = 25% markup
- 25% margin = 33.3% markup
- 30% margin = 42.9% markup
- 40% margin = 66.7% markup
How to choose which one to use
Use markup when you build the price up from real job costs and want a straightforward, repeatable way to add profit. Use margin when you plan around a target return on sales or need to compare your pricing with published industry margins.
Whichever you choose, be consistent. Mixing a 25% markup in one estimate and a 25% target margin in another produces very different prices for the same job and makes it almost impossible to know what you actually earn.