Make This Useful

Updated · Make This Useful

Markup vs margin for contractors, with a conversion chart

Markup is profit over cost; margin is profit over price. On $700 of job cost, a 30% markup gives $910 (a 23.1% margin) and a 30% margin gives $1,000. To hit a margin, divide cost by one minus the margin: $700 ÷ 0.7. Count your own labor in the cost first, or the margin is paying your wage.

How do I convert markup to margin?

Margin = markup ÷ (1 + markup). Markup = margin ÷ (1 − margin). The same percentage is always a smaller margin than markup, so "add 30%" earns less than it sounds. To earn a true 30% margin, you need a 42.9% markup.

  • 20% markup = 16.7% margin
  • 25% markup = 20% margin
  • 30% markup = 23.1% margin
  • 50% markup = 33.3% margin
  • 100% markup = 50% margin

Which costs go into the job cost?

Everything the job uses up: labor (yours too), materials, sub work, dump fees, permits, and a share of overhead like insurance, fuel and the truck. Example: two painters for a day at the national mean painter wage of $25.82 an hour is $413.12 of labor. Add $380 of paint and supplies and the job costs $793.12 before overhead.

At a 30% margin that job sells for $1,133.03. If you leave your own day out of the cost because you are the owner, the margin quietly turns into your wage and the business earns nothing. Put overhead in once, either as a share added to each job's cost or as a margin high enough to cover it, and keep the same method on every quote so jobs compare.

How do I price a 30% margin on the whole job?

Add up the whole job's cost, then divide by 0.7. Don't add 30% to each line and call it margin; that is markup and it lands you at 23.1%. On the $700 job, the customer sees $1,000. You can spread that across the lines however reads best, as long as the total holds.

Customers don't need to see a "margin" line; a quote with the work, the price and the terms is enough. Some owners carry a little more on labor and less on materials the customer could price themselves; that is fine if the job total still meets the target. Check the total again whenever you change labor, swap a material or add an extra.

What does a discount do to my margin?

It comes straight out of profit, because the costs stay the same. Take 10% off the $1,000 price and the customer pays $900. Your profit drops from $300 to $200, and the margin from 30% to 22.2%.

So a 10% discount costs you about a third of the profit on that job. If you need to come down, take something out of the scope instead (a coat, a room, the haul-away) so the price drops with the cost. When a supplier raises prices after the customer has accepted, handle it through a change order if your quote allows it; otherwise it comes out of your margin.

Frequently asked questions

Is 30% markup the same as 30% margin?

No. On $700 of cost, 30% markup is $910; a 30% margin is $1,000. The gap grows with the job: on a $10,000 job cost it is $1,285.71.

Is my own pay part of the profit?

No. Put the pay you need for the hours you work into labor cost. Profit is what is left after every cost, including you, and it pays for growth, slow months and new equipment.

Should sales tax be part of the price I calculate margin on?

No. Calculate margin on your price before tax. The sales tax you collect belongs to the state, so leave it out of both the price and the profit.

Sources

Price the whole job at your margin

Enter the total job cost and the margin you want. See the price, and what the same percentage does as a markup.

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