ContractorHandbook

Markup vs Margin Calculator for Contractors

This is the most expensive arithmetic mistake in the trades. A 50 percent markup is a 33 percent margin, and a contractor who thinks those are the same thing is losing a sixth of every job and cannot work out where it went.

Priceyour costgross profitmarkup is measured against thismargin is measured against this50% markup is 33.3% margin, and they are never the same number
Markup and margin describe the same dollar and divide it by different things, which is why fifty and thirty three can both be right about one job. The bar shows what each one is a share of.

Worked example

These are the figures the calculator opens with and the answer it gives. Change anything above and every number below moves with it.

  • Your cost for the job10000 $
  • I want to setMarkup percent
  • That number50 % or $

Price to charge$15,000.00

Your cost$10,000.00
Price$15,000.00
Gross profit$5,000.00
Markup, against cost50%
Margin, against price33.3%this is the one your accountant means
If you want this marginMark up cost byOn $10,000 cost, charge
10%11.1%$11,111.11
15%17.6%$11,764.71
20%25%$12,500.00
25%33.3%$13,333.33
30%42.9%$14,285.71
35%53.8%$15,384.62
40%66.7%$16,666.67
50%100%$20,000.00

What this calculator assumes

  • Markup is measured against your cost. Margin is measured against the price. They are never the same number and confusing them is the most expensive arithmetic mistake in the trades.
  • A 50 percent markup is a 33.3 percent margin. To actually keep 50 percent of the price you have to mark up by 100 percent.

The two definitions, and the only thing you have to remember

Markup is measured against your cost. Margin is measured against the price. Same dollar of profit, different denominator, and the denominators are never equal because the price is always bigger than the cost.

Cost $1,000, price $1,500. The profit is $500. As markup that is 500 over 1,000, which is 50 percent. As margin it is 500 over 1,500, which is 33.3 percent. Both describe the same job.

The rule to keep: markup is always the bigger number. If someone quotes you a percentage and you cannot tell which one they mean, ask, because on a $50,000 job the gap is $8,350.

Why this costs real money

A contractor decides he needs 30 percent to survive. He marks his costs up 30 percent, and his actual margin is 23 percent. Every year he takes 7 points less than he planned and every year he cannot explain why the bank balance does not match the job book.

To actually keep 30 percent of the price, the cost has to be marked up by 42.9 percent. To keep 40 percent, mark up 66.7. To keep half the price, mark up 100. That last one surprises everybody and it is the clearest illustration of the gap.

The formula both ways: markup = margin / (100 - margin) x 100. And margin = markup / (100 + markup) x 100.

Which one should you actually use

Price with markup, because it is the one you can apply to a cost sheet as you build the estimate. Measure with margin, because it is the one that compares to your P and L, to other contractors, and to last year.

Every accountant, lender and industry benchmark talks in margin. Every supplier and estimator talks in markup. Know which room you are in.

Questions people ask

Is a 50 percent markup the same as a 50 percent margin?

No. A 50 percent markup gives a 33.3 percent margin. To achieve a 50 percent margin you must mark up your cost by 100 percent, which is doubling the price.

How do I convert markup to margin?

Margin equals markup divided by 100 plus markup, times 100. A 35 percent markup is 35 / 135 = 25.9 percent margin.

What markup should a contractor use?

It depends entirely on your overhead, which is the point. Work out overhead as a percentage of revenue, decide the profit you want, and use the overhead and profit calculator. A markup that works for a one truck operation will bankrupt a company with an office.

Is gross margin the same as profit?

No. Gross margin is what is left after direct job costs and it still has to pay your overhead: the truck, the insurance, the phone, the office, your time estimating. Net profit is what is left after all of that.

Need the paperwork too?

Free Contractor Estimate Template, free, no signup, PDF Word and Excel.

Common sizes, worked out

The same calculator with the numbers already filled in, one page per size, each ending in its own material list.

5% markup4.8%10% markup9.1%12% markup10.7%15% markup13%18% markup15.3%20% markup16.7%22% markup18%25% markup20%30% markup23.1%33% markup24.8%35% markup25.9%40% markup28.6%45% markup31%50% markup33.3%55% markup35.5%60% markup37.5%65% markup39.4%70% markup41.2%75% markup42.9%80% markup44.4%100% markup50%200% markup66.7%5% margin5.3%8% margin8.7%10% margin11.1%12% margin13.6%15% margin17.6%18% margin22%20% margin25%22% margin28.2%25% margin33.3%28% margin38.9%30% margin42.9%33% margin49.3%35% margin53.8%40% margin66.7%45% margin81.8%50% margin100%55% margin122.2%60% margin150%65% margin185.7%70% margin233.3%75% margin300%80% margin400%

Put this calculator on your own site

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Related calculators

Overhead and profit calculatorApply overhead and profit to a job cost correctly, as margins rather than markups, and see what the common shortcut costs you.Job costing calculatorBuild a job price from materials, burdened labor, subs, equipment, contingency, overhead and profit.Hourly rate calculatorWork backwards from the income you want, your overhead and the hours you can actually bill, to the hourly rate that gets you there.

Contractor Handbook · https://contractorhandbook.com/calculators/markup-vs-margin-calculator/