Ask ten contractors what margin they work on and you'll get ten numbers, often with "markup" and "margin" used as if they meant the same thing. They don't, and the gap between them is real money. A business that thinks it's making a 25% margin while actually applying a 25% markup is earning a fifth less than it believes, and that difference is often the whole of its profit.
The definitions
- Markup is profit as a percentage of cost: markup = (price − cost) ÷ cost.
- Margin is profit as a percentage of selling price: margin = (price − cost) ÷ price.
A job that costs $10,000 and sells for $12,000 has a 20% markup but only a 16.7% margin. Same job, same profit, different percentage depending on what you divide by.
Why it matters
Overheads and targets are usually set as a share of revenue: "overhead runs at 15% of turnover, and we want 10% net." That's margin language. If you then add 25% to your costs and think you've hit a 25% margin, you've actually hit 20%, and your net profit may be half what you planned. Accountants, banks and industry benchmarks all talk in margins, so it pays to think in margins too, even if you price with a markup.
Conversion table
| Margin you want | Markup needed |
|---|---|
| 10% | 11.1% |
| 15% | 17.6% |
| 20% | 25.0% |
| 25% | 33.3% |
| 30% | 42.9% |
| 35% | 53.8% |
| 40% | 66.7% |
| 50% | 100% |
markup = margin ÷ (1 − margin) and margin = markup ÷ (1 + markup).
Markup on materials vs labour
Many trades mark up materials and labour differently. Materials often carry 10–25% to cover buying time, collection, handling, waste, returns and the risk of price rises between quote and purchase. Labour is usually priced at a charge-out rate that already contains overhead and profit. TakeoffYard jobs follow that model: a markup percentage on materials, and labour at your hourly rate. Subcontractors, plant hire and skips are often marked up by a smaller percentage, to cover managing them.
Overhead comes first
Gross margin is not profit. Your van, insurance, phone, software, accountant, tools, unpaid quoting time and office costs all come out of it. If overheads run at 12% of revenue and you work on a 15% gross margin, you're clearing about 3%. One bad job, one late payer or one wet month wipes that out.
Work out your overhead percentage once a year: total annual overheads ÷ total annual revenue. Most small trade businesses are surprised by the answer.
Putting it into practice
- Work out your annual overhead and divide it by expected revenue. That gives your overhead percentage.
- Decide the net profit percentage you want. Ten percent is a common target for small contractors; some aim higher on small jobs.
- Add the two together. That's the gross margin you need.
- Convert it to a markup with the table above, and use that on your costs.
Example: overhead 15% + profit 10% = 25% margin needed, which means a 33.3% markup on cost. Marking up by 25% instead would leave only 5% profit after overhead.
Small jobs need more
Fixed costs don't shrink with the job: travel, quoting, buying, setting up and clearing up take time whether the job is a day or a month. That's why small jobs usually need a higher markup or a minimum charge. Many contractors set a minimum call-out or minimum job value for exactly this reason.
Showing markup to clients
Most clients never see your markup: it's built into the prices on the quote. TakeoffYard's Client sees setting shows itemized prices with markup already applied, section totals, or a single total. If a client asks to see material costs, explain that your prices include buying, handling and guaranteeing the materials, not just the receipt from the supplier.
Check every job afterwards
Compare the actual cost of every finished job with what you quoted, and work out the real margin. That one habit tells you which kinds of work make money, which don't, and whether your markup is right.
The markup & margin calculator converts both ways, the job pricing calculator builds a full bid from costs, and the hourly rate calculator builds your charge-out rate from your overheads.
This guide is general information for estimating. It is not engineering, legal or tax advice. Check local codes and your inspector for your project.