Markup vs margin: how to price for the profit you want
Published
Markup and margin both describe profit as a percentage, but they use a different base. Mixing them up is one of the easiest ways to underprice a job without noticing. Here is how each one works and how to move between them.
The two formulas
Markup is the profit divided by the cost. Margin is the profit divided by the price. Because the price is larger than the cost, the margin is always the smaller number.
Example: a job costs you 800 and you charge 1,000. The profit is 200. The markup is 200 / 800 = 25% and the margin is 200 / 1,000 = 20%.
Why the mix-up costs money
Say you need a 20% margin to cover your overhead and leave something for yourself, and you add a 20% markup to your cost. On a job that costs 1,000 you charge 1,200. The profit is 200, but the margin is only 16.7%. You are short on every job, and the gap grows with the size of the job.
To get a target margin, use this formula: markup = margin / (1 - margin). A few common values, rounded to one decimal, are listed in the next section.
Markup needed for a target margin
- 10% margin needs an 11.1% markup
- 15% margin needs a 17.6% markup
- 20% margin needs a 25% markup
- 25% margin needs a 33.3% markup
- 30% margin needs a 42.9% markup
- 40% margin needs a 66.7% markup
- 50% margin needs a 100% markup
Work from cost to price
If you think in margin, divide the cost by (1 - margin) to get the price. A cost of 800 and a 20% margin gives 800 / 0.8 = 1,000. If you think in markup, multiply the cost by (1 + markup). A cost of 800 and a 25% markup gives 800 x 1.25 = 1,000. Both routes land on the same price when the percentages match.
Margin is not take-home pay
The profit on a job usually has to cover more than your own pay: insurance, vehicles, tools, software, office time and the quiet weeks between jobs. Decide what your business needs to cover and choose a margin from that, rather than copying a number from another trade.
Seeing the numbers while you estimate
SiteReporta shows cost, profit, margin and markup while you build an estimate. They are for you only and never appear on the customer's PDF, so you can check the margin on every job before you send it.
For the rest of the estimate, read how to write a contractor estimate.
General guidance, not legal, tax or accounting advice. Rules differ by country and trade.