Contractor markup vs. margin: formulas and a worked job example

The difference is the number you divide by

Markup and margin describe the same difference between price and cost from different starting points. Markup compares that difference with the cost. Margin compares it with the selling price. If those denominators get mixed up, a quote can look as though it meets your target when it does not.

For this guide, contribution means selling price minus the costs included in your calculation. That definition matters: if you have not included overhead or other business expenses, the result is not profit after every expense. The fictional figures below explain the arithmetic, not what any contractor should charge.

Work through US$800 in cost and a US$1,000 price

Suppose a job has US$800 of costs in your worksheet and you sell it for US$1,000. The difference is US$200. Divide US$200 by US$800 and you get 25% markup. Divide the same US$200 by US$1,000 and you get 20% margin.

Neither percentage is a different pot of money. Both refer to the same US$200. The percentages differ because one starts with cost and the other starts with revenue. Write the term next to the number in your worksheet so “add 25%” cannot be mistaken for “keep a 25% margin.”

Swipe or scroll sideways to see all columns.

Calculate a price from a target

For a markup target, price = cost × (1 + markup). Enter the percentage as a decimal: a 25% markup on US$800 gives US$800 × 1.25 = US$1,000. The resulting margin is 20%, as the previous example shows.

For a margin target, price = cost ÷ (1 − margin). A 25% target margin on US$800 therefore needs a price of approximately US$1,066.67, not US$1,000. A 30% target margin gives US$800 ÷ 0.70, or US$1,142.86 rounded to cents. These are arithmetic examples, not recommended targets.

Swipe or scroll sideways to see all columns.

Check what your cost figure leaves out

Start by identifying the costs you intend to cover: labor, purchased materials and other job-specific costs. Decide how to account for items such as travel, disposal, equipment use and overhead in your own pricing process. Do not add a markup to an incomplete cost figure and assume it has automatically covered everything.

Your own working time also needs an explicit treatment. If the worksheet includes materials but omits the owner's labor, the apparent margin can look large while the job pays poorly for that time. Keep the definition of cost consistent when comparing two jobs; otherwise the percentages are not measuring the same thing.

Recheck the amount after a discount or an extra

If the US$1,000 example receives a US$100 discount while the included cost stays at US$800, the remaining difference is US$100. The margin becomes US$100 ÷ US$900, or about 11.1%. A 10% reduction in selling price has not merely reduced the original margin by 10%.

Extra work needs the same attention. Recalculate its costs and price rather than copying the original job's percentage without checking the added scope. Describe the change separately, show its price and schedule, and preserve what the customer reviewed. A pricing calculation does not substitute for an agreed change.

Use the calculator as a check, not a quote generator

Adendu's free resources page includes a job pricing calculator for comparing price, cost, markup, margin and a target margin. It uses the figures you enter; it does not inspect a site, supply local labor rates or determine the right profit target for your business. Keep tax treatment and your chosen cost definitions consistent when using the result.

Round the final price deliberately and check the resulting margin again. Keep a short note of the assumptions behind the quote so you can compare them with actual costs later. That comparison is more useful than a precise-looking percentage built from costs you never checked.