Margin to Markup Chart
Start from the margin you need to run the business on, and read off the markup you have to price at to get it.
This is the direction that matters at the estimating table. You already know what margin the business needs, because overhead and profit are both percentages of revenue. What you do not know without a table or a formula is what to multiply the cost by to land there.
The formula is markup equals margin divided by one minus margin, and the column below is that formula run at every target a contractor is likely to set.
Markup, price and profit at every target margin
| Target margin | Markup needed | Price on $1,000 cost | Gross profit |
|---|---|---|---|
| 5% | 5.3% | $1,052.63 | $52.63 |
| 10% | 11.1% | $1,111.11 | $111.11 |
| 15% | 17.6% | $1,176.47 | $176.47 |
| 20% | 25% | $1,250.00 | $250.00 |
| 25% | 33.3% | $1,333.33 | $333.33 |
| 30% | 42.9% | $1,428.57 | $428.57 |
| 35% | 53.8% | $1,538.46 | $538.46 |
| 40% | 66.7% | $1,666.67 | $666.67 |
| 45% | 81.8% | $1,818.18 | $818.18 |
| 50% | 100% | $2,000.00 | $1,000.00 |
| 55% | 122.2% | $2,222.22 | $1,222.22 |
| 60% | 150% | $2,500.00 | $1,500.00 |
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The markup vs margin calculator takes your own measurements and returns the number for your job, plus the material list as a printable document. Every cell in the table above came out of that same calculator, run at build time.
Pick the margin from your overhead, not from a forum post
Gross margin has two jobs: cover the overhead of running the business, and leave a profit after it. Add up a year of rent, insurance, the truck, the phone, software, the bookkeeper, your own time spent estimating rather than working, and divide by a year of revenue. That percentage is the floor.
Whatever profit you want comes on top of it. A business with 18 percent overhead that wants 10 percent profit needs a 28 percent margin at minimum, which is a 38.9 percent markup, not a 28 percent one.
The top of the table is not greed
Fifty percent margin looks outrageous until you count what sits behind it on a small job. A half day service call carries drive time, a truck, the license, the insurance, the phone that answered, and the estimate that did not get sold. Trades with high overhead and short tickets price there routinely and are not getting rich.
A large new construction contract with long production runs and low per job overhead prices far lower. The margin that is right is the one that covers your overhead, not the one that matches somebody else's business.
Hold the margin when you discount
Cutting a price by 10 percent does not cut the profit by 10 percent, it cuts it by whatever fraction of the margin that 10 percent represents. On a 25 percent margin, a 10 percent discount takes 40 percent of the profit off the job.
That is the number to have in front of you when a customer asks for a round number off, and it is the reason the discount usually needs to come with scope leaving the job too.
Questions people ask
What markup do I need for a 30 percent margin?
42.9 percent. A $1,000 cost becomes a $1,428.57 price, and the $428.57 profit is 30 percent of that price.
What markup do I need for a 40 percent margin?
66.7 percent, so a $1,000 cost is priced at about $1,666.67.
How do I convert margin to markup?
Divide the margin by one minus the margin. A 0.25 margin divided by 0.75 gives 0.333, which is a 33.3 percent markup.
Is gross margin the same as profit?
No. Gross margin is what is left after the direct cost of the job, and it still has to pay the overhead of running the business. Net profit is what is left after that.