Contractors often use "markup" and "margin" as if they were the same percentage. They are not. Treating them as interchangeable is a common way to underprice a remodeling, painting, HVAC, or other home-service job.
This article explains the two formulas, walks through a consistent numeric example, and links to a free markup vs. margin calculator for contractors. The figures are teaching examples only. They are not a recommended target, not typical results, and not a promise that your profit will change.
Markup and margin are not the same number
Markup is the amount you add on top of cost, expressed as a percentage of cost. Margin (gross margin, here) is the amount left after cost, expressed as a percentage of the selling price.
- Markup % = (Price - Cost) / Cost
- Margin % = (Price - Cost) / Price
- Margin dollars = Price - Cost
Because the denominators are different, a 25% markup is not a 25% margin.
The two pricing formulas
Once you have a complete cost - burdened labor, materials, other direct costs, and a fair share of overhead - you can set a price from a target:
- If the target is a margin: Price = Cost / (1 - target margin)
- If the target is a markup: Price = Cost x (1 + target markup)
Match the formula to the word you meant. Adding 25% to cost will not produce a 25% margin.
A US$10,000 example
Use a round US$10,000 cost so the arithmetic is easy to check. This is not a typical job and not a recommended price.
| If you want... | Formula | Price | Margin $ | Margin % | Markup % |
|---|---|---|---|---|---|
| 25% markup | 10,000 x 1.25 | US$12,500 | US$2,500 | 20% | 25% |
| 25% margin | 10,000 / 0.75 | US$13,333.33 | US$3,333.33 | 25% | 33.3% |
The gap between those two bids is about US$833 for the same cost. If someone says "just add 25%" and you needed 25% of the price to cover what you intended, you would be short.
What a discount does to margin dollars
A discount is usually discussed as a percentage of the price. The cost does not fall when the price does, so margin dollars fall by the full amount of the cut.
Take the 25% margin price above: US$13,333.33 on a US$10,000 cost leaves US$3,333.33. A 10% price cut brings the price to US$12,000 and the margin dollars to US$2,000 - a 40% reduction in planned margin dollars, on the same work.
The calculator has a discount field so you can see dollars remaining before you agree to a cut.
Use a complete cost first
The math only helps if the cost is complete. A wage on a paycheck is not a burdened labor rate. Materials without waste, dump fees, or a share of insurance and unpaid quoting time will make any target look better than the job can support. For a category-by-category layout, see the contractor job costing template. For a step-by-step cost-to-price walk-through, see how to price a remodeling job, or trade-specific guides on how to bid a painting job and HVAC pricing for small contractors.
What this article will not do
- It will not assign a universal margin for remodeling, painting, HVAC, roofing, or any other trade.
- It will not promise that a calculated price is what the market will pay, or that field results will match a target.
- It is not accounting, tax, or legal advice.
The MarginMaster course (US$59, one-time) includes this calculator's method in a spreadsheet, plus job-costing, quote, crew, and cash-flow templates. Buy the course if you want the files. Instant access after payment; we do not send a confirmation email. We do not promise income or margin results.