Markup vs margin calculator
For estimators: convert a markup into a margin and back, price a job from its cost and a markup or a target margin, and see in numbers why adding 20% to cost does not leave a 20% margin.
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How it is calculated
Markup and margin divide the same profit by different numbers. Markup divides it by the cost, margin by the selling price. Since the price is always larger than the cost, the margin is always the smaller of the two percentages.
markup = profit / cost
margin = profit / price
price = cost × (1 + markup)
price = cost / (1 − margin)
margin = markup / (1 + markup)
markup = margin / (1 − margin)
The classic error, worked through: on a cost of 100,000, a 20% markup prices the job at 120,000. The 20,000 of profit is 16.67% of that price. To keep 20% of the price, the job has to sell at 125,000, a 25% markup. An estimate that meant to hold a 20% margin and added 20% to cost is 5,000 short on this job alone.
| Markup | Margin |
|---|---|
| 5% | 4.76% |
| 10% | 9.09% |
| 15% | 13.04% |
| 20% | 16.67% |
| 25% | 20.00% |
| 30% | 23.08% |
| 40% | 28.57% |
| 50% | 33.33% |
| 75% | 42.86% |
| 100% | 50.00% |
| Margin | Markup needed |
|---|---|
| 5% | 5.26% |
| 10% | 11.11% |
| 15% | 17.65% |
| 20% | 25.00% |
| 25% | 33.33% |
| 30% | 42.86% |
| 40% | 66.67% |
| 50% | 100.00% |
How do you price a construction job from cost and a target margin?
A worked example with invented, round figures. The job has three cost layers, as most bid sheets do, and the company wants to keep 12% of the selling price as profit after overhead. The arithmetic is the one the calculator runs.
| Step | Arithmetic | Result |
|---|---|---|
| Direct cost: labor, material, equipment, subcontracts | from the takeoff and the quotes | 250,000.00 |
| Overhead, as the company allocates it, 10% of direct cost | 250,000 × 0.10 | 25,000.00 |
| Total cost | 250,000 + 25,000 | 275,000.00 |
| Target margin 12% of price: markup needed | 0.12 / (1 − 0.12) | 13.64% |
| Selling price | 275,000 / (1 − 0.12) | 312,500.00 |
| Profit | 312,500 − 275,000 | 37,500.00 |
| Check: profit as a share of price | 37,500 / 312,500 | 12.00% |
| The classic error: adding 12% to cost instead | 275,000 × 1.12 = 308,000; profit 33,000 is 10.71% of price | 4,500.00 short |
Two things decide the right answer before any percentage: what the cost already contains (direct only, or with overhead allocated), and whether the company's target is a share of revenue (a margin) or an uplift on cost (a markup). Mixing them is the 4,500 in the last row.
Related
FAQ
What is the difference between markup and margin?
Both describe the same profit, measured against different bases. Markup is profit divided by cost; margin is profit divided by the selling price. A job that costs 100,000 and sells for 125,000 has a profit of 25,000: a 25% markup and a 20% margin.
How do I convert markup to margin?
Margin = markup / (1 + markup). A 25% markup is 0.25 / 1.25 = 20% margin. The other way, markup = margin / (1 - margin): a 20% margin needs 0.20 / 0.80 = 25% markup.
Why doesn't a 20% markup give a 20% margin?
Because the margin is measured on the price, which already includes the markup. On a cost of 100,000, a 20% markup gives a price of 120,000 and a profit of 20,000, which is 16.67% of the price. To keep 20% of the price, the job must sell at 125,000.
What markup do I need for a 20% margin?
25%. For a 10% margin, 11.11%; for 15%, 17.65%; for 30%, 42.86%. The gap widens as the target rises: a 50% margin needs a 100% markup.
Should an estimate be priced with markup or margin?
Either works, as long as the percentage and the formula agree. The error comes from mixing them: an overhead and profit target taken from the company's accounts is usually a share of revenue, a margin, while a bid sheet often adds percentages on top of cost, a markup. Applying the first with the second formula underprices the job.
What is a typical markup in construction?
There is no single figure, and this page does not publish one: it depends on the trade, the market, the risk and what the cost already contains. The useful question is which percentage your own accounts need as a share of revenue to cover overhead and leave the profit you want, and then the markup that produces it: a 20% margin needs a 25% markup, a 12% margin needs 13.64%.
Does the markup have to cover overhead?
It depends on what the cost already contains. If the cost is direct cost only (labor, material, equipment, subcontracts), the markup has to carry overhead and profit. If overhead is already allocated into the cost, the markup is profit only. The arithmetic is the same; what changes is what the percentage must pay for.
A markup is only as good as the cost it multiplies.
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