Markup and margin both describe the money left after a cost, and they divide it by different numbers. Markup is profit divided by your cost; margin is profit divided by your selling price. A job that costs $1,000 and sells for $1,300 leaves $300 either way: a 30% markup, and a 23.1% margin.
What is the difference between markup and margin?
Markup measures profit against your cost. Margin measures the same profit against your selling price. The price is always bigger than the cost, so margin is always the smaller percentage — add 30% to a $1,000 estimate and you have a 30% markup and a 23.1% margin.
Take a fictional painting company quoting an interior repaint. Crew hours, paint, and sundries come to $1,000, and you quote $1,300. Every dollar figure here is illustrative, not pricing guidance.
| Markup | Margin | |
|---|---|---|
| What it divides by | Your cost | Your selling price |
| Formula | profit ÷ cost | profit ÷ price |
| On a $1,000 cost, $1,300 price | $300 ÷ $1,000 = 30% | $300 ÷ $1,300 = 23.1% |
| What it tells you | How much you added on top of what the job cost | How much of the customer's dollar you keep |
| When you use it | Building a price up from a cost estimate | Judging whether a price was worth doing |
Markup builds the price. Margin judges the job. Convert with margin = markup ÷ (1 + markup), or go the other way with markup = margin ÷ (1 − margin) — a 30% margin needs a 42.9% markup.
How do I price a job to hit a target margin?
Divide your cost by one minus the target margin: Price = cost ÷ (1 − target margin). On $1,000 of cost, a 30% target means $1,000 ÷ 0.70, which is $1,428.57. Marking the same $1,000 up by 30% would have quoted $1,300, or $128.57 short.
Most quoting tools add a markup by default, so check what yours is doing before you trust the percentage on the screen. Work out your two numbers once and write them beside the estimating sheet.
The percentage is only as honest as the cost under it. If your $1,000 covers crew hours at a loaded rate, materials, disposal, subs, and travel, then 23.1% is a gross margin on direct job costs, not net profit. Rent, insurance, and the truck payment still come out of it.
Sorting your spending into fixed and variable costs shows how much gross margin the business has to produce. A realistic contractor profit margin target is built from your own overhead, not borrowed from another shop.
A quote is a guess. A $200 callback on that $1,000 job takes the actual cost to $1,200, leaving $100 of the $1,300 price, so margin drops from 23.1% to 7.7%. Comparing the quote against the finished numbers is what job costing is for.
What should I check before I send a quote?
Run four checks before a quote leaves your desk: list every expected cost, name whether the percentage you are adding is a markup or a margin, price from the target-margin formula, and write down what the price does not cover.
- List every expected cost
Crew hours at a loaded rate, materials, disposal, subs, travel, and the unbilled site visit.
- Name the percentage
Write on the estimate whether the number you added is a markup or a margin.
- Price from the target
Divide the cost by (1 − target margin) instead of multiplying the cost by a markup.
- Write down what is excluded
Anything outside that line needs a written price change before the crew starts it.
There are three practical ways to do this: use a spreadsheet, ask your accountant or bookkeeper, or connect your tools so Barry AI can calculate markup and margin, compare quotes with actuals, and show where profit slipped.
Barry, calculate markup and gross margin for my last 10 completed jobs using connected prices and costs. Compare quoted and actual margins, show what changed, and flag missing costs.
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