Markup vs Margin Calculator: The Pricing Mistake Costing Contractors

Markup and margin sound interchangeable. They are not and confusing them is the most common pricing mistake in contracting. Markup is profit divided by cost; margin is profit divided by price. Because the denominators differ, the same dollars produce different percentages.

The 30% that isn't

Put a 30% markup on a $10,000 job: price = $10,000 × 1.30 = $13,000, profit $3,000. That $3,000 is 30% of cost but only 23% of the $13,000 price. If your business plan assumed a 30% margin, you are 7 points short before overhead even enters the picture.

The two directions of the same job:

• Bid from markup: price = cost × (1 + markup)
• Bid from margin: price = cost ÷ (1 − margin)
• To hit a true 30% margin on $10,000 of cost: $10,000 ÷ 0.70 = $14,286

Net true profit

Gross profit minus overhead recovery is net true profit the number that actually stays in the business. A job can show a healthy gross margin and still lose money once office, insurance, and truck costs are allocated. Run the margin math first, then subtract your overhead rate, and price the bid from that net target.