Construction money, explained
Markup vs margin
Markup is how much you add on top of your costs, expressed as a percentage of cost. Margin is how much of the final price is profit, expressed as a percentage of the selling price. They describe the same dollars from two different angles, so a 50% markup is only a 33% margin.
Updated June 2026
What is the difference between markup and margin?
Both numbers start from the same two figures: your cost and your price. The gap between them is your gross profit in dollars. Markup and margin just divide that gross-profit dollar amount by different denominators. Markup divides it by your cost. Margin divides it by your price. Because the price is always larger than the cost, the margin percentage is always smaller than the markup percentage for the same job.
This matters because the two are easy to mix up, and mixing them up costs you money. A contractor who wants to keep 30% of every dollar (a 30% margin) but instead adds 30% on top of cost (a 30% markup) ends up keeping only about 23% of the price. On a year of jobs, that gap is the difference between a healthy business and one that is busy but broke.
A simple gut check: when someone says they marked a job up, the base is what the job cost them. When someone talks about the margin on a job, the base is what the customer paid. If you are not sure which one a number refers to, ask which denominator it used before you rely on it.
How do you convert markup to margin (and back)?
The two conversion formulas are short. To turn a markup into a margin: margin = markup / (1 + markup). To turn a margin into the markup you need to charge: markup = margin / (1 - margin). Use decimals in the math (50% becomes 0.50) and convert back to a percentage at the end.
It helps to memorize a few common pairs so you can sanity-check pricing on the spot. A 25% markup equals a 20% margin. A 50% markup equals a 33.3% margin. A 100% markup (doubling your cost) equals a 50% margin. Notice that you have to roughly double the markup to land on a given margin once you get past the small numbers.
Going the other direction is the move most contractors actually need, because they decide what margin they want to keep and then have to figure out the multiplier. If you want a 40% margin, the markup is 0.40 / (1 - 0.40) = 0.667, so you multiply cost by 1.667. If you want a 50% margin, you multiply cost by 2.
Why does this matter for pricing a job?
If you build estimates by adding a flat markup to your costs, you are quietly accepting whatever margin that markup produces, and it is always lower than the markup number that made you feel comfortable. Many trade contractors who think they are running 30%-plus jobs are actually running low-20s margins for exactly this reason.
The fix is to price toward the margin you need to cover overhead and still take home a profit, then back into the markup multiplier from there. Decide the margin first because that is the number that pays your bills; treat markup as the lever you pull to hit it.
In Simple Contractor CRM, line-item estimates show live margin as you build the bid, so you can see what you will actually keep before you send it to the customer instead of discovering it after the job closes.
Worked example
Say a job costs you $10,000 in materials, labor, and subs. You add a 50% markup, so you charge $15,000. Your gross profit is $5,000. As a markup that is $5,000 / $10,000 = 50%. But as a margin it is $5,000 / $15,000 = 33.3%. Same $5,000 — two very different percentages.
Now flip it. You decide you need a 40% margin to stay healthy. Using markup = margin / (1 - margin) = 0.40 / 0.60 = 0.667, you mark the $10,000 cost up by 66.7% and charge $16,667. Check it: profit is $6,667, and $6,667 / $16,667 = 40%. If you had simply added 40% (charging $14,000), your margin would have been only 28.6% — a $2,667 miss on a single job.
Frequently asked
- Is markup or margin bigger for the same job?
- Markup is always the bigger number, because it divides profit by the smaller figure (cost). Margin divides the same profit by the larger figure (price), so it is always smaller.
- What markup do I need for a 50% margin?
- A 100% markup. You double your cost. Using markup = margin / (1 - margin), 0.50 / 0.50 = 1.00, or 100%.
- Which one should I price with?
- Decide the margin you need first, since that is the share of revenue you keep to cover overhead and profit, then convert it to the markup multiplier you charge on cost.
- Does the customer ever see markup or margin?
- No. These are internal pricing numbers. The customer only sees the final price. Keep your cost basis and margin to yourself.
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