Markup vs Margin for Contractors: Price a Job for the Profit You Want

The two formulas

Markup is profit divided by cost. Margin is profit divided by price. Because the price is always bigger than the cost, the margin percentage is always smaller than the markup percentage for the same job.

• Price from a markup: price = cost × (1 + markup).
• Price from a target margin: price = cost ÷ (1 − margin).
• Markup → margin: margin = markup ÷ (1 + markup).
• Margin → markup: markup = margin ÷ (1 − margin).

Conversion table

Round numbers for the most common percentages. Use the formulas above for anything in between.

Going the other way: a 10% margin needs an 11.11% markup, 20% needs 25%, 30% needs 42.86% and 40% needs 66.67%.

Where overhead fits

Contractors usually talk about overhead and profit ("O&P") together. Decide which one your percentages describe before comparing numbers. In the free construction estimate calculator and in both of our estimate spreadsheets, overhead is a percentage of direct cost and profit is a markup on direct cost plus overhead and contingency. The calculator reports two figures: the profit margin on price (profit ÷ total) and overhead plus profit as a share of the price.

Taxes are outside the margin

Margin is worked out on your selling price before any sales tax, GST/HST or VAT you collect on the invoice. Whether and how tax applies depends on where you work and the type of contract, so confirm it with your tax authority or a qualified professional rather than building a rule of thumb into your markup.

Which calculator uses which

Worked example: the same $1,000 two ways

A small repair has $1,000 of direct cost (materials, labour, subcontract — before tax).

To earn a 25% margin you need a 33.33% markup, not 25%.

On a bigger job the gap is real money. A kitchen with $48,000 of cost priced at a 20% markup sells for $57,600 and earns $9,600 — a 16.67% margin. If you meant a 20% margin, the price should have been $60,000 with $12,000 of profit: $2,400 left on the table.

Pricing checklist

• Write down whether your target is a markup or a margin.
• Convert it with the formula or the table before you enter it in an estimate tool.
• Check which percentage each tool expects (see the table above).
• Keep tax out of the margin calculation.
• After the job, compare the estimated margin with the actual margin from your job costing.

Brainfy files for this task

Checked against the files customers download. Prices are current catalogue prices.

• Residential Construction Estimate Template (Paid — $39.00)

  XLSX · 1 file · sheets: Start Here, Estimate

  Its Profit % input is a markup on direct cost plus overhead and contingency — enter the markup that gives the margin you want (see the table above).

• Contractor Professional Estimating System (Paid — $149.00)

  PDF + XLSX · 3 files · sheets: Start Here, Company, Item Library, Estimate, Proposal

  Uses the same markup method and also shows gross margin on price, which counts overhead and profit together.

• Job Costing Spreadsheet (Paid — $39.00)

  XLSX · 1 file · sheets: Start Here, Job Summary, Jobs, Costs

  After the job: margin per job is gross profit ÷ revenue (contract plus change orders), so you can see what you actually earned.

Sources and method

All percentages and amounts on this page are recomputed by an automated test using the same functions as the Brainfy calculators. No external data is used.

Keep going

• Construction Estimate Template: How to Price a Job Line by Line
• Contractor Job Costing Spreadsheet: Know Which Jobs Make Money
• Handmade Product Pricing: Cover Materials, Your Time and Fees
• Browse Construction and Trades
• For contractors: the full workflow