Markup vs margin for contractors: a plain guide
Same job, same "20%", two different prices. Here's the difference in one minute, a worked bathroom job, where overhead fits, and the mistakes that quietly cost contractors the most.
Why the same number gives two prices
Both percentages describe the same gap between what a job costs you and what you charge for it. They just measure that gap against different things.
- Markup measures the gap against your cost: a $1,000 job with a 20% markup gets $200 added, so the price is $1,200.
- Margin measures the gap against the price: on that $1,200 price, the $200 you keep is 16.7%, not 20%.
Because the price is always bigger than the cost (if you're making money), the margin number is always smaller than the markup number for the same job. That's the whole trick, and it's why "I mark up 20%" and "I make 20%" are different sentences.
Price from margin price = cost ÷ (1 − margin)
Margin of a price margin = (price − cost) ÷ price
Margin → markup markup = margin ÷ (1 − margin)
A worked job: replacing a bathroom vanity
Here is one job priced both ways. The numbers are an example, not market prices: use what you pay and what an hour of your crew costs.
| Cost | Amount |
|---|---|
| Vanity, top and faucet (what you pay) | $640.00 |
| Supply lines, shims, caulk, fasteners | $60.00 |
| Labor: 1 person × 7 hours × $38/hour cost | $266.00 |
| Disposal of the old vanity | $40.00 |
| Direct job cost | $1,006.00 |
Say you want to keep 30% of every job as gross profit.
You keep $301.80 = 23.1% margin
You keep $431.15 = 30% margin
The gap is $129.35 on one vanity. Nothing about the work changed; only which number the 30% was taken from. To get the same result with a markup, you'd use 42.9%.
Run your own job in the calculator
Where overhead fits
Direct costs are the ones a single job causes: materials, labor, disposal, a sub. Overhead is what it costs to stay in business whether you work this week or not: the truck, insurance, phone, software, the office.
Gross margin ignores overhead. It's price minus direct costs. Overhead, your own pay and taxes all come out of the gross profit afterward, which is why a "30% margin" job is not 30% in your pocket.
One simple way to include overhead in a price:
- Add up last year's overhead. Say it was $24,000.
- Add up last year's direct job costs. Say they were $160,000.
- Divide: $24,000 ÷ $160,000 = 15%. Each dollar of job cost carried 15 cents of overhead.
- Add that share to the job before you apply your margin.
For the vanity: 15% of $1,006 is $150.90, so the base is $1,156.90. Pricing that for 20% left after overhead gives $1,446.13. Gross margin on the job is 30.4%; after the overhead share, $289.23 (20%) is left. Those example numbers are only there to show the steps — use your own books.
Five mistakes that cost contractors money
1. Using a margin number as a markup
The vanity above: wanting 30% and typing 30% as a markup leaves $129.35 on the table. If you think in "what I keep," price by margin, or convert: markup = margin ÷ (1 − margin).
2. Pricing your own labor at zero
If you do the work yourself, your hours are still a cost. Leave them out and the "profit" is really your wage, which disappears the day you hire someone.
3. Forgetting overhead entirely
A job can show a healthy gross margin and still lose money once the truck and insurance are paid. Either price on top of overhead, or check that the gross profit covers its share.
4. Calling gross profit "profit"
Gross profit still pays overhead, you and the taxes. Net profit is what's left after all of that. Mixing them up makes a thin business look healthy.
5. Discounting off the price without redoing the math
A discount comes straight out of your margin. Take 10% off the $1,437.15 vanity price and you charge $1,293.44: your margin drops from 30% to 22.2%, and your gross profit falls from $431.15 to $287.44 — a third of it, gone, for a 10% discount.
Flat prices: check them backward
Many jobs are quoted as one number: "$300 to swap the faucet." That's fine — the price is yours, and it should stay exactly $300. Just check it backward once: if the job costs you $210, the margin is ($300 − $210) ÷ $300 = 30%. If the cost creeps up to $250, the same $300 keeps only 16.7%.
A quick reference
| Margin you want | Markup to use |
|---|---|
| 10% | 11.1% |
| 15% | 17.6% |
| 20% | 25% |
| 25% | 33.3% |
| 30% | 42.9% |
| 35% | 53.8% |
| 40% | 66.7% |
| 50% | 100% |
What margin should you aim for? That depends on your trade, your overhead and your market, and this guide won't pretend to know your numbers. Work out your overhead rate, decide what you need to pay yourself, and let the margin follow from that.
Your prices, every time you estimate
TalkEstimate keeps your own price list and markups, and builds the estimate from them while you talk through the job — the margin is right there before you send it. The AI organizes what you said; it never sets a price.
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