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Sign inSee how different markup levels affect your selling price and profit on this job.
| Markup % | Selling Price | Profit $ | Profit Margin % |
|---|---|---|---|
| 20% | $0.00 | $0.00 | 0.0% |
| 30% | $0.00 | $0.00 | 0.0% |
| 40% | $0.00 | $0.00 | 0.0% |
| 50% | $0.00 | $0.00 | 0.0% |
| 66.7% | $0.00 | $0.00 | 0.0% |
Markup and margin are not the same number. This is the most common pricing mistake contractors make. Markup is based on your cost; margin is based on the selling price.
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Start your 14-day free trialThe markup formula is straightforward:
Selling Price = Direct Costs × (1 + Markup%)
Or equivalently: Markup % = (Selling Price - Direct Costs) / Direct Costs × 100
Direct costs are your materials plus labor — the money that goes directly into the job. Markup is what you add on top to cover your overhead (insurance, trucks, tools, office) and your actual profit.
For example, if a bathroom remodel costs you $15,000 in materials and labor and you apply a 40% markup, your selling price is $21,000. That $6,000 difference covers your overhead and profit.
This is the single most important concept in contractor pricing, and the one most often confused. Markup is calculated on your cost. Margin is calculated on the selling price. They are never the same number.
How much you add on top of your cost.
(Price - Cost) / Cost × 100
How much of the selling price is profit.
(Price - Cost) / Price × 100
A contractor who says “I use a 30% markup” earns a 23.1% margin. A contractor who thinks they have a 30% margin but is actually using a 30% markup is earning 7 percentage points less than they think. On a $50,000 job, that's $3,500 in “missing” profit.
There is no universal “right” markup. It depends on your trade, your overhead, and your market. Here are typical ranges:
| Trade | Typical Markup | Equivalent Margin |
|---|---|---|
| Remodeling / Design-Build | 35% - 50% | 26% - 33% |
| Specialty Trades (plumbing, electrical, HVAC) | 20% - 35% | 17% - 26% |
| General Contractors | 15% - 25% | 13% - 20% |
| Handyman / Small Jobs | 50% - 100% | 33% - 50% |
| New Construction | 10% - 20% | 9% - 17% |
The key insight: your markup needs to cover all your overhead before you see a dollar of profit. If you don't know your overhead number, you're guessing — and guessing is how contractors go out of business while staying busy.
If you think you have a 30% profit margin but you're applying a 30% markup, you actually have a 23.1% margin. Over a year of jobs, that gap adds up to tens of thousands of dollars.
Most contractors underestimate overhead by 5-10%. Insurance, vehicle costs, tool replacement, callbacks, and admin time add up fast. If your markup doesn't cover overhead, every “profitable” job is actually a loss.
A $5,000 bathroom vanity swap and a $200,000 kitchen remodel don't need the same markup percentage. Smaller jobs need higher markups because your fixed overhead (driving to the site, managing the project, insurance) is a larger share of the cost.
Lowering your markup to win a job means you're subsidizing the client's project with your business. If your overhead is 15% and you bid at 15% markup, your profit is literally zero. You're working for free.
When you hire a sub, you still carry risk, coordination time, and warranty responsibility. Passing through sub costs at zero markup means you're managing their work for free.
Markup is the percentage added to your direct costs (materials + labor) to cover overhead and profit. If a job costs you $10,000 and you charge $13,000, your markup is 30%. The formula is: Markup % = (Selling Price - Cost) / Cost x 100.
Markup is calculated on your cost; margin is calculated on the selling price. A 50% markup equals a 33.3% margin. They are never the same number. Confusing them is the most common pricing mistake contractors make — and it can wipe out your profit.
It depends on your trade and overhead. General contractors typically use 15-25%, specialty trades 20-35%, and remodeling contractors 35-50%. The right number is the one that covers all your overhead costs and leaves a real net profit.
Add up all your annual overhead costs — insurance, vehicle expenses, tools, office costs, licenses, marketing, admin — and divide by your total annual revenue of direct costs. If your overhead is $75,000 and your direct costs are $500,000, your overhead rate is 15%.
Because overhead is the cost of doing business and profit is what you actually keep. If you lump them into one number, you might think you're profitable when you're really just covering expenses. Splitting them gives you clarity on whether jobs are actually making money.
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