What is the difference between markup and margin?

Markup is profit divided by cost. Margin is profit divided by price. For the same job, markup is always the larger percentage. A 50 percent markup equals a 33.3 percent margin.

How do I convert markup to margin?

Margin = markup divided by (1 plus markup). A 25 percent markup converts to 0.25 divided by 1.25, which is a 20 percent margin.

What margin should a contractor aim for?

There is no single correct number. It depends on your overhead, your trade, your market and how much of the work is your own labor. The useful target is the margin that covers your actual overhead and pays you a real wage, which you can only calculate once you know what your jobs genuinely cost.

Is a 20 percent markup the same as a 20 percent margin?

No, and this is the mistake that costs the most. A 20 percent markup produces a 16.7 percent margin. To get a genuine 20 percent margin you need a 25 percent markup.

Markup vs margin

Updated July 27, 20264 min readWritten by the WIPKeep team

The short answer

Markup is calculated on your cost, margin is calculated on your price, and they are never the same number. A 50 percent markup produces a 33.3 percent margin. Marking up a $10,000 cost by 20 percent gives a $12,000 price and a 16.7 percent margin, not a 20 percent one. To hit a target margin, divide cost by one minus the margin.

Key takeaways

Markup percentage = (price minus cost) divided by cost.
Margin percentage = (price minus cost) divided by price.
To price for a target margin: price = cost divided by (1 minus margin).
Markup is always the larger number. Treating them as interchangeable underprices every job by the gap between them.

Two words, one dollar amount, two different answers. This is arithmetic rather than accounting, and it is probably the most expensive arithmetic in the trades.

The two formulas

Take a job that costs you $10,000 and that you sell for $12,000. Your gross profit is $2,000. Now describe that $2,000 as a percentage.

The same job, two percentages
	Formula	Result
Markup	$2,000 divided by $10,000 cost	20 percent
Margin	$2,000 divided by $12,000 price	16.7 percent

Same job. Same $2,000. The only difference is what you divided by. Markup measures profit against what you paid. Margin measures it against what you charged.

The conversion table

Markup to margin conversion
Markup on cost	Resulting margin	Price on $10,000 of cost
10 percent	9.1 percent	$11,000
15 percent	13.0 percent	$11,500
20 percent	16.7 percent	$12,000
25 percent	20.0 percent	$12,500
33.3 percent	25.0 percent	$13,330
43 percent	30.0 percent	$14,300
50 percent	33.3 percent	$15,000
67 percent	40.0 percent	$16,700
100 percent	50.0 percent	$20,000

How to price for a margin you actually want

Do not add a percentage to cost. Divide.

price = cost / (1 - target margin)

Add up your true job cost
Materials, subs, direct labor at loaded cost, rental, permits, dump fees. If you are not sure what a job really costs you, that is the first problem to fix. See what is job costing.
Pick the margin you need
Not the margin you would like. The one that covers overhead and pays you.
Divide, do not add
A $10,000 cost at a 30 percent target margin: 10,000 divided by 0.70 equals $14,286.
Check it
$14,286 minus $10,000 is $4,286, divided by $14,286 is 30 percent. Correct.

Gross margin is not profit

One more distinction worth having straight. Gross margin is what is left after direct job costs. It has not paid for anything else yet.

Truck payments, fuel and insurance
General liability and workers compensation
Phone, software, licenses, accounting
The hours you spend bidding, invoicing and chasing payment
Slow seasons, warranty callbacks, unpaid invoices

All of that comes out of gross margin before anything reaches you. Which is why a 15 percent gross margin on a busy year can still end with nothing in the account, and why knowing your real per-job margin is worth the effort of tracking it.

Frequently asked questions

What is the difference between markup and margin?: Markup is profit divided by cost. Margin is profit divided by price. For the same job, markup is always the larger percentage. A 50 percent markup equals a 33.3 percent margin.
How do I convert markup to margin?: Margin = markup divided by (1 plus markup). A 25 percent markup converts to 0.25 divided by 1.25, which is a 20 percent margin.
What margin should a contractor aim for?: There is no single correct number. It depends on your overhead, your trade, your market and how much of the work is your own labor. The useful target is the margin that covers your actual overhead and pays you a real wage, which you can only calculate once you know what your jobs genuinely cost.
Is a 20 percent markup the same as a 20 percent margin?: No, and this is the mistake that costs the most. A 20 percent markup produces a 16.7 percent margin. To get a genuine 20 percent margin you need a 25 percent markup.