TL;DR
Markup is profit as a percentage of cost. Margin is profit as a percentage of price. Same dollars, different denominator, and the gap eats contractors alive: a 30% markup is only a 23% margin, a 50% markup is a 33% margin, and the crew that "marks up 20%" while overhead runs 25% of revenue is losing money on every job while the bank account slowly confirms it. The one formula to tattoo somewhere visible: to hit a target margin, divide by (1 minus margin), never multiply by (1 plus margin). Cost $10,000 at a 33% target margin is $10,000 ÷ 0.67 = $14,925, not $13,300. Conversion table and the real-world traps below.
We audit contractor pricing tools and proposals for a living, and this mix-up is the most expensive bug we find. One estimating setup we reviewed had a field labeled "margin" that calculated a markup; every proposal it produced was several points thinner than the owner believed. Nobody caught it because both numbers look like percentages and both feel like profit. Here's the difference, in trade terms, with the math you can hand a crew lead.
The two formulas
Markup answers: how much did I add on top of my cost? Markup % = profit ÷ cost. Margin answers: how much of the price I charged is profit? Margin % = profit ÷ price. Take a job that costs you $8,000 and sells for $10,000. The $2,000 of profit is a 25% markup ($2,000 ÷ $8,000) and a 20% margin ($2,000 ÷ $10,000) at the same time. Neither number is wrong; they're two rulers measuring the same board. The damage starts when you set goals in one and price in the other.
The conversion table
| Markup | Actual margin | To get this margin, multiply cost by |
|---|---|---|
| 10% | 9.1% | 1.10 |
| 20% | 16.7% | 1.20 |
| 30% | 23.1% | 1.30 |
| 40% | 28.6% | 1.40 |
| 50% | 33.3% | 1.50 |
| 67% | 40% | 1.67 |
| 100% | 50% | 2.00 |
| The rule | Margin is always smaller than the markup that produced it, and the gap widens as the numbers grow. "50% markup" sounds like half the job is profit. A third of it is. | |
The formula that protects the paycheck
Working from a target margin, the correct move is division: price = cost ÷ (1 − target margin). Want 35% margin on $12,000 of cost? $12,000 ÷ 0.65 = $18,462. The instinctive move (multiplying: $12,000 × 1.35 = $16,200) quietly delivers a 26% margin instead, and on that one job the instinct cost $2,262. Multiply that by a season. This is also why "we need 10% profit and overhead runs 15%" does not mean "mark up 25%": a 25% markup is a 20% margin, which covers the 15% overhead and leaves 5% profit, half of what you planned. Stack your overhead and profit targets as margin, then divide.
not × 1.35. The divide-don't-multiply rule is the whole post in four characters, and it's worth points of real profit on every job you price.
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Where the confusion costs real money
Cost-plus contracts. "Cost plus 20" needs one more word to be a contract: 20% markup on cost is a different number than 20% margin on price, and remodelers sign both meanings every week. Write the formula into the contract, not just the percentage.
Supplier talk versus P&L talk. Suppliers and counter staff speak markup; your accountant and your P&L speak margin. A number that travels from a vendor conversation into your pricing spreadsheet without conversion arrives about 5 to 17 points optimistic, per the table above.
Change orders and small jobs. The thin-margin leak concentrates where pricing happens fastest: the driveway change order, the "couple hundred bucks" service call. Fast pricing defaults to multiplying, and multiplying defaults to thinner-than-intended. Our change order template builds the markup line into the paperwork so the math happens on the form instead of in your head, and the contractor invoice template does the same on the collection side.
Software settings. Check what your estimating tool actually computes when it says "margin." Some field service platforms label the field one way and calculate the other, which is exactly the bug we opened with. Two test entries (cost $100, percentage 50, price should read $200 for margin and $150 for markup) settle it in under a minute, whatever you run: the pricing tools in Jobber, Housecall Pro, or a spreadsheet from 2011.
Which one should a contractor use?
Margin, for goals and reporting, because it's the language of your P&L and the number that has to cover overhead and profit out of every collected dollar. Markup, as the mechanical step that gets there, computed with the division rule. Benchmark honestly: healthy residential remodel and service work typically runs gross margins in the 30s and 40s (meaning markups of 50 to 80%+), and if your gross margin is in the 20s, the problem is almost never that you're bad at the work. It's that you priced with the wrong denominator.
Frequently asked questions
What's the difference between markup and margin?
Markup measures profit against cost; margin measures the same profit against price. A job costing $8,000 and selling for $10,000 carries a 25% markup and a 20% margin simultaneously. Margin is always the smaller number, and the gap grows as percentages rise: 50% markup is 33% margin, 100% markup is 50% margin.
Is a 30% markup the same as 30% margin?
No. A 30% markup yields a 23.1% margin. To actually earn a 30% margin you need about a 43% markup, calculated as price = cost ÷ 0.70. Confusing the two on a $20,000 job leaves roughly $2,000 on the table, which is why the distinction belongs in writing on cost-plus contracts.
How do I price a job for a target margin?
Divide cost by (1 minus the target margin as a decimal). For 35% margin on $12,000 of cost: $12,000 ÷ 0.65 = $18,462. Multiplying by 1.35 instead produces $16,200 and only a 26% margin. Divide, don't multiply, and stack overhead and profit into the margin target before you do.
What margin should a contractor aim for?
Common healthy targets in residential trades: gross margins in the 30s to 40s so that overhead (often 10 to 25% of revenue) still leaves a real net profit. A shop grossing in the low 20s is typically underpricing, not underperforming. Know your own overhead percentage first; a target borrowed from a different-sized company is a guess.
Why does my accountant's margin differ from my estimate margin?
Usually because the estimate's "cost" missed something real: unbillable drive time, callbacks, warranty work, equipment, or the owner's field hours. Estimated margin is a plan; the P&L margin is the verdict. When they diverge consistently, audit what job costs your estimates exclude before concluding the crew is slow.
Priced right but not busy enough?
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