Confusing markup with margin quietly costs contractors thousands. Here is the simple math, the difference, and how to price every job for the profit you actually want.
Markup and margin sound like the same thing. They are not, and the gap between them is where a lot of profit quietly disappears. If you mark up a job 20 percent thinking you keep 20 percent, you are actually keeping less, and on every job.
This is the simple math, in plain terms, so you can price for the profit you actually want.
Markup is how much you add on top of your cost. Margin is how much of the final price you keep as profit. They use the same dollars but a different denominator.
Say a job costs you 1,000 dollars. You add 20 percent markup, so you charge 1,200. Your profit is 200 dollars. But 200 divided by the 1,200 price is only about 16.7 percent margin, not 20 percent. The markup was 20 percent. The margin was lower.
The bigger your markup, the wider the gap. A 50 percent markup is only a 33 percent margin. To actually keep a 50 percent margin, you have to mark up 100 percent. Contractors who price by markup and think in margin are always keeping less than they planned.
If you want to keep a specific margin, divide your cost by one minus that margin. For a 30 percent margin on a 1,000 dollar cost, divide 1,000 by 0.70, which is about 1,429. Charge that and you keep 30 percent of the price as profit. Build this into your estimate template once and you never have to do the math by hand again.
Price with markup if that is your habit, but always check the resulting margin. The margin is what actually lands in your pocket.
It varies by trade and overhead, but many residential contractors target a gross margin in the 30 to 50 percent range to cover overhead and leave net profit.
Use the same markup or margin formula in your estimate every time instead of pricing each job from memory.