Markup vs. Margin in Construction Estimating (and the Math)
Markup and margin are calculated on different numbers, and confusing them is expensive. Here are the formulas, a conversion table, and worked examples.
June 16, 2026 · 6 min read
Markup and margin both describe the gap between what a job costs you and what you charge for it, but they are calculated on different numbers, and confusing them is one of the most expensive mistakes in estimating. A contractor who thinks a 25% markup gives a 25% margin is leaving money on the table on every single job. Here is the difference, with the formulas.
The definitions
Both start from the same two numbers: your cost (what the work costs you) and your price (what you charge the client). The difference is what you divide by.
The two formulas Markup = (price − cost) ÷ cost. Margin = (price − cost) ÷ price. Same numerator, your profit in dollars, but markup divides by cost and margin divides by price. Because price is always larger than cost, the margin percentage is always smaller than the markup percentage.
Start freeA worked example
A job costs you $10,000 and you charge $12,500. Your profit is $2,500.
- Markup = 2,500 ÷ 10,000 =
25%. - Margin = 2,500 ÷ 12,500 =
20%.
Same job, same dollars, two different percentages. If you told a client “I add 25%” and your accountant asked for your margin, the honest answer is 20%.
Pricing from a target
Most of the time you know your cost and a percentage you want, and you need the price. Which formula you use depends on whether the percentage is a markup or a margin.
Solving for price From markup: price = cost × (1 + markup). From margin: price = cost ÷ (1 − margin). For a $10,000 cost, a 25% markup gives 10,000 × 1.25 = $12,500, while a 25% margin gives 10,000 ÷ 0.75 = $13,333. The margin price is higher, that gap is the money people leave behind.
Start freeConverting between them
If you know one, you can convert to the other: margin = markup ÷ (1 + markup), and markup = margin ÷ (1 − margin). A quick reference:
- 15% markup =
13.0%margin. - 20% markup =
16.7%margin. - 25% markup =
20.0%margin. - 33.3% markup =
25.0%margin. - 50% markup =
33.3%margin. - To hit a 30% margin you need a
42.9%markup; for a 40% margin, a66.7%markup.
Why this matters on the bid
Say your overhead and profit need to total 30% of revenue to keep the business healthy, that is a 30% margin target. If you instead mark cost up by 30%, you only achieve a 23% margin, and the missing seven points come straight out of your profit. Across a year of jobs that gap is the difference between a healthy business and a busy one that never gets ahead. The fix is simple: decide your number as a margin, and price with price = cost ÷ (1 − margin).
Margin has to cover more than profit
Out of the gap between cost and price come your overhead, office, insurance, software, admin, and only what remains is profit. If overhead runs 12% of revenue and you want 10% net profit, your gross margin target is at least 22%. Build the estimate from direct cost, then apply the margin that covers both. (More on the full chain in construction estimating for beginners.)
Let the tool do the math
The reliable way to avoid the markup/margin trap is to never compute it by hand on a live bid. Estimating software lets you set a target margin once and applies the correct price = cost ÷ (1 − margin) to every line. JobPlumb does exactly that: measure the quantities, attach your assemblies, set your margin, and the bid is right by construction. See how to bid a job without underbidding for where this fits in the full estimate.
Start a free JobPlumb project and price your next job on margin, not guesswork.