The two definitions
Markup answers: how much did I add on top of cost? Markup = (price - cost) / cost.
Margin answers: what share of the price is profit? Margin = (price - cost) / price. When cost means direct job costs (labor, parts, permits, subs), this is gross margin. When cost also includes overhead, it is closer to net profit margin.
Same dollars, different denominator. That is the whole difference, and it is why the two percentages never match.
| Example job | Amount |
|---|---|
| Cost | $1,000 |
| Price | $1,500 |
| Profit | $500 |
| Markup ($500 / $1,000) | 50% |
| Margin ($500 / $1,500) | 33.3% |
The conversion table
Use this when someone gives you one number and you need the other. Formulas: margin = markup / (1 + markup), and markup = margin / (1 - margin). The multiplier column is what you multiply cost by to get the price.
| Target margin | Markup needed | Multiply cost by | $1,000 cost sells for |
|---|---|---|---|
| 10% | 11.1% | 1.111 | $1,111 |
| 15% | 17.6% | 1.176 | $1,176 |
| 20% | 25.0% | 1.250 | $1,250 |
| 25% | 33.3% | 1.333 | $1,333 |
| 30% | 42.9% | 1.429 | $1,429 |
| 33.3% | 50.0% | 1.500 | $1,500 |
| 40% | 66.7% | 1.667 | $1,667 |
| 45% | 81.8% | 1.818 | $1,818 |
| 50% | 100.0% | 2.000 | $2,000 |
| 55% | 122.2% | 2.222 | $2,222 |
| 60% | 150.0% | 2.500 | $2,500 |
| 70% | 233.3% | 3.333 | $3,333 |
And the other direction:
| Markup you applied | Margin you actually got |
|---|---|
| 10% | 9.1% |
| 20% | 16.7% |
| 25% | 20.0% |
| 30% | 23.1% |
| 40% | 28.6% |
| 50% | 33.3% |
| 75% | 42.9% |
| 100% | 50.0% |
| 150% | 60.0% |
| 200% | 66.7% |
Want to skip the table? The job pricing and markup calculator converts both ways and prices a job to a target margin.
What mixing them up costs: a worked example
Say Harbor Line Plumbing (a made-up shop) plans its year on a 40% gross margin, because that is what covers overhead and leaves a profit. An estimator takes a repipe with $6,000 of direct costs and "adds 40%".
| Added 40% markup | Priced to 40% margin | |
|---|---|---|
| Direct cost | $6,000 | $6,000 |
| Price | $8,400 ($6,000 x 1.40) | $10,000 ($6,000 / 0.60) |
| Gross profit | $2,400 | $4,000 |
| Actual margin | 28.6% | 40.0% |
The gap is $1,600 on one job, all of it profit the shop thought it had. Over a year of jobs, that can be the difference between a good year and a year where the owner wonders where the money went. All figures are examples.
Which number to use when
- Setting prices and goals: margin. Your overhead and profit are shares of revenue, so plan in margin. "We need 40% of every dollar to cover overhead and profit" is a margin statement.
- Parts markups: markup is fine, as long as you know the margin it produces. A 50% parts markup is a 33.3% margin on that part.
- Talking to your accountant: margin. Profit and loss statements show margins against revenue.
- Talking to the crew: pick one and say which. "Forty percent" means nothing until everyone knows whether it is markup or margin.
Where margin goes missing even when the math is right
- Missing costs. A 40% margin on an estimate that forgot the permit, the dumpster or the second trip is not 40%.
- Wage instead of burdened rate. Labor priced at the wage leaves out payroll taxes, comp and non-billable time. Use the burdened labor rate.
- Discounts taken off the price. A 10% discount on a 40% margin job cuts the margin to 33.3%, because the whole discount comes out of profit.
- Overhead not counted anywhere. A healthy gross margin can still be a loss if it does not cover overhead. Check real numbers with job costing.
Common mistakes
- Saying "we run 50%" without knowing if it is markup or margin.
- Using one markup on everything when labor-heavy and parts-heavy jobs need different pricing.
- Comparing your markup with another shop's margin.
- Working out margin on the price before discounts, then giving the discount.
How SWITCHBOARD handles this
Every SWITCHBOARD estimate shows both numbers live, margin and markup, against your own target as lines are added. If a cost is missing it is flagged instead of guessed, so the margin you see is not quietly overstated.
Questions people ask
What is the difference between markup and margin?
Markup is profit divided by cost. Margin is profit divided by price. The same job always shows a higher markup percentage than margin percentage.
What markup do I need for a 50% margin?
A 100% markup, which means doubling the cost. A $1,000 cost sells for $2,000.
How do I convert markup to margin?
Margin = markup / (1 + markup). A 25% markup is 0.25 / 1.25, which is a 20% margin.
Is a 30% markup a 30% margin?
No. A 30% markup is a 23.1% margin. To get a 30% margin you need about a 42.9% markup.
Should contractors price with markup or margin?
Set your goals and prices in margin, because overhead and profit are shares of revenue. Markup is fine for parts as long as you know the margin it produces.