Markup vs margin in construction: formulas and table

Markup vs margin comes down to what you divide by. Markup is profit as a share of costs, margin is profit as a share of the selling price, so a 20 percent markup gives only a 16.7 percent margin. When you know the margin a job needs, the price is costs ÷ (1 − margin). All figures are before VAT.

What is the difference between markup and margin?

Markup is the percentage you add on top of costs. Margin is the part of the selling price left after the direct costs are paid. Both describe the same amount of money, but the percentages use a different base, so the markup percentage is always higher than the margin.

If a job costs 1,000 and you charge 1,250, you keep 250. Against the costs that is a 25 percent markup; against the price it is a 20 percent margin.

Accountants call the amount left over gross margin or contribution: revenue minus variable costs. On a construction job the variable costs are the job’s direct costs, so the job’s margin is the price minus its direct costs.

Markup and margin formulas

The formulas work both ways, from costs to price and from price back to margin. Write the percentages as decimals, so 25 % is 0.25.

What you calculate	Formula
Margin (amount)	selling price − direct costs
Margin %	margin ÷ selling price × 100
Markup %	margin ÷ direct costs × 100
Price at target margin	direct costs ÷ (1 − margin)
Price with markup	direct costs × (1 + markup)
Markup from margin	margin ÷ (1 − margin)
Margin from markup	markup ÷ (1 + markup)
Overhead share	annual overheads ÷ annual turnover

In Excel the formula is the same. With direct costs in B2 and the target margin in B3, the price is =B2/(1-B3). What else belongs in the quote is covered in the contractor quote template guide.

Work out your own price with the margin calculator: enter your costs and a percentage, and it shows the price, the margin and the markup.

How much margin does a markup give?

The table shows the margin produced by common markups.

Markup	Margin
10 %	9.1 %
15 %	13.0 %
20 %	16.7 %
25 %	20.0 %
30 %	23.1 %
50 %	33.3 %

Starting from a target margin, these are the markup and the multiplier you need:

Target margin	Markup needed	Multiply costs by
10 %	11.1 %	1.111
15 %	17.6 %	1.176
20 %	25.0 %	1.250
25 %	33.3 %	1.333
30 %	42.9 %	1.429

Which costs are direct and which come out of the margin?

Direct costs exist because of this job and are priced line by line in the quote. Overheads are there whether you win the job or not, and they are paid out of the margin together with the company’s profit.

Direct costs:

• materials including waste
• your own labour: hours times the hourly cost including employer costs
• subcontractors
• equipment, tools and scaffolding
• site costs such as protection, transport and waste disposal

Paid out of the margin:

• office, phones, software and bookkeeping
• vehicles, where they are not priced into jobs
• insurance
• time spent estimating, quoting and meeting clients
• unbilled hours such as waiting and return visits
• warranty work
• the company’s profit

Work out the overhead share from a year’s figures. With 60,000 of overheads on 400,000 of turnover, overheads are 15 percent of turnover. The target margin is that share plus the profit you want to keep.

How to calculate margin for contractors

Price the direct costs line by line first, then set the price with the target margin. Doing it in the same order every time keeps costs from dropping out or being counted twice.

1. Quantities. Measure areas, lengths and counts. The method is in the material takeoff guide.
2. Direct costs. Price materials with waste, labour hours, subcontractors, equipment and site costs on lines of their own. Quantities of mortar, tile adhesive, grout and concrete are in the material consumption guide.
3. Overhead share. Divide last year’s overheads by turnover.
4. Target margin. Add the profit you want from the job to the overhead share.
5. Selling price. Divide the direct costs by 1 − the target margin.
6. Check. Work out the margin on the finished price: (price − costs) ÷ price. If you give a discount, work it out again.

A bathroom has direct costs of 10,000 in total: materials with waste 3,500, your own labour 4,500, electrical and plumbing subcontracted for 1,500, and equipment, protection and waste 500. Overheads are 15 percent of turnover and you want 10 percent profit, so the target margin is 25 percent. The table prices the same job with a 25 percent markup and with a 25 percent margin.

	25 % markup	25 % target margin
Direct costs	10,000	10,000
Selling price	12,500	13,333
Margin	2,500 (20 %)	3,333 (25 %)
Overheads, 15 % of price	1,875	2,000
Profit	625 (5 %)	1,333 (10 %)

The markup price is 833 lower. Overheads still have to be paid, so the whole difference comes out of profit, which halves.

Why is a 20 percent markup not a 20 percent margin?

Markup is calculated on a smaller number than margin. Multiply costs by 1.2 and the margin is 16.7 percent of the price, so every job is 3.3 percentage points short of what you thought you were making.

In construction that gap is large next to what companies keep. According to Eurostat’s structural business statistics, the gross operating rate of construction (NACE F), gross operating surplus as a share of turnover, was 5.41 percent in Finland and 6.63 percent in Sweden in 2023. Across industry, construction and market services it was 8.78 percent in Finland and 12.66 percent in Sweden. When the whole sector keeps a few percent, a 3.3-point error can take most of the result.

Discounts repeat the same mistake. Cut a price of 13,333, set at a 25 percent margin, to 12,000 and the costs stay where they were while the margin drops to 16.7 percent.

Should you track margin per job or for the whole company?

Both. A job’s margin shows whether the work covers its own costs and its share of overheads. Across the company, the margins of all jobs together pay the year’s overheads, and only what is left after them is profit.

When a job is finished, compare actual costs with the estimate line by line. You will see whether the gap came from labour hours, waste or lines that were missing, and the next quote can use your own figures.

Not every job needs the same margin. A small job takes almost as much time to estimate and drive to as a large one, so its margin has to be higher to cover overheads. To spread overheads more precisely, divide the year’s overheads by your billable hours and add that amount to the cost of every labour hour.

Costs that get left out of the margin

These costs are easy to miss, both in direct costs and in the overhead share:

• estimating time, including quotes that never turn into work
• driving to site and collecting materials
• unbilled hours: waiting, interruptions and return visits
• warranty repairs that come years later
• employer costs and holiday pay in the hourly cost
• material waste and leftover packs
• tool wear and small purchases
• waste fees and permits
• financing costs when you pay for materials before the client pays you

The quote lines that are left out most often are listed in the contractor quote template guide.

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