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Pricing5 min read
Markup vs margin: the math that quietly kills contractors
If you add 20% to your cost and expect a 20% margin, you are already short. Markup and margin describe the same dollars against different bases.
The two definitions
Markup is profit as a percentage of cost. Margin is profit as a percentage of the sell price. A $10,000 job marked up 20% sells for $12,000 — but that $2,000 is only 16.7% of the sell price.
The conversion
- 10% margin = 11.1% markup
- 15% margin = 17.6% markup
- 20% margin = 25% markup
- 25% margin = 33.3% markup
- 30% margin = 42.9% markup
Overhead is not profit
Insurance, vehicles and fuel, office staff and software are overhead. They must be recovered before a dollar of profit exists. Track them separately and the question 'did we make money on that job?' has an actual answer.
A workable structure
- Direct cost: material + crew labor + equipment
- Overhead recovery: a percentage covering insurance, fuel, admin
- Permits and fees: a real line item, not absorbed
- Profit: what is left, targeted as a margin on the sell price
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