Margin vs Markup

The two formulas

Markup is a percentage added on top of cost:

price = cost × (1 + markup%)

Margin is the percentage of the final price that is profit:

price = cost ÷ (1 − margin%)

Same $10,000 of job cost, same "20%": a 20% markup gives a $12,000 bid. A 20% margin gives a $12,500 bid. That $500 gap is pure profit you either capture or donate — on every job, forever.

The "10 and 10" trap

The old rule of thumb — "add 10% for overhead and 10% for profit" — is a markup rule, and it under-delivers twice. Applied as markups, 10 and 10 gets you a 20% markup, which is a 16.7% margin. If your overhead genuinely runs 10% of revenue, your actual profit margin on that bid is under 7% — before the first surprise. Contractors who "make 10%" on paper and wonder where it went at tax time are usually standing in this exact hole.

Why margin is the number that matters

Every financial statement, banker, bonding agent, and industry benchmark speaks in margin — profit as a share of revenue. When you read that healthy remodelers run "8–12% net margins," that's margin. If your bidding uses markup while your goals use margin, you're steering with a miscalibrated compass: a contractor applying a 33% markup and believing they earn 33% actually earns 25% gross — before overhead takes its bite.

Conversion table

Read the middle column: to genuinely earn a 30% margin you need a 42.9% markup. Most contractors who "add 30%" have never seen that number.

The fix takes one line

Decide your target margin, then price every job as cost ÷ (1 − margin) — with overhead already inside the cost. That's it. Every tool on this site does it that way: margin applied to price, never markup mislabeled as margin.