Markup vs. margin

Two contractors quote the same job with the same costs. One ends the year profitable; the other wonders where the money went. The difference is often one misunderstood word: margin.

Markup and margin are not the same number

• Markup is a percentage of your cost.
• Margin is a percentage of your price.

Say a job costs you $1,000 and you add a 20% markup:

• Price = 1,000 × 1.20 = $1,200
• Profit = $200
• Margin = 200 ÷ 1,200 = 16.7%

You aimed for 20% and kept 16.7%. The bigger the markup, the bigger the gap.

To hit a margin, divide — don't multiply

To actually keep a target margin, divide your cost by (1 − margin):

Price = cost ÷ (1 − margin)

1,000 ÷ (1 − 0.20) = 1,000 ÷ 0.80 = $1,250

Check it: profit is $250, and 250 ÷ 1,250 = a true 20%. The gap grows as you aim higher — a 33% markup keeps only 24.8%, while 1,000 ÷ 0.67 = $1,493 keeps a real 33%.

The bid

Your real price is every cost — materials + labor + overhead — run through that one division:

Bid = (materials + labor + overhead) ÷ (1 − target margin)

Same costs, correct math. That's the contractor who's still in business next year — and it starts from the quantities your tools already give you.