Introduction

Ever priced a job with a 20% markup and wondered why your profit felt skinny? You’re not alone. Many contractors mix up markup vs margin and leave money on the table. This guide lays out exactly what markup vs margin means, how to set the right selling price, and how to protect your profit in the real world. We’ll walk through formulas that actually stick, step-by-step pricing, examples, and common mistakes to avoid. By the end, you’ll be able to quote confidently and hit your target profit—without guesswork.

Quick Answer: Markup vs margin isn’t the same. Markup is how much you add to cost to get your selling price. Margin is the profit percentage of the selling price. To earn a 20% margin, you need roughly a 25% markup. Get clear on both before you price any job.

Table of Contents

• Quick Answer
• Key Takeaways
• Markup Vs Margin Basics (With Formulas That Stick)
• Step-By-Step: Build Your Price The Right Way
• Common Pricing Mistakes Contractors Make
• Use Tools To Speed Up And Safeguard Pricing
• Pricing Scenarios You Can Steal
• FAQ

Key Takeaways

• Markup is added to cost; margin is profit as a percentage of sell price. A 20% margin needs about a 25% markup.
• Price in this order: direct costs → labor burden → overhead → contingency → target margin → final sell price.
• Add labor burden (often 30–45% of base wage) and overhead (commonly 10–20% of cost) or your margin will evaporate.
• Recalculate margin after discounts—5% off the top can slash profit by more than half on tight jobs.
• Use tools to run what-if scenarios in minutes and lock scope with signed proposals to protect profit.

Markup Vs Margin Basics (With Formulas That Stick)

Let’s make it simple.

Quick Definitions

• Markup: The percentage you add to cost to set your price.
• Margin: The percentage of your selling price that is profit.

Formulas You’ll Remember

• Selling Price = Cost x (1 + Markup)
• Margin = (Selling Price - Cost) ÷ Selling Price

If you want a specific margin, convert it to markup this way:

• Markup = Margin ÷ (1 - Margin)

Example

• Target margin: 20% → Markup = 0.20 ÷ 0.80 = 0.25 (25%)
• Cost: 10,000 → Selling Price = 10,000 x 1.25 = 12,500

Markup-to-Margin Quick Reference

Many contractors assume 20% markup means 20% profit. It doesn’t. That gap is where profit disappears.

Step-By-Step: Build Your Price The Right Way

This is the order that keeps you out of trouble.

1. Gather Direct Costs (The Hard Numbers)

• Materials (including waste, delivery, and fasteners)
• Labor hours x base wage
• Subcontractors’ quotes
• Equipment and rentals (by day or week)

Aim for line-item accuracy. On a typical 2-day repair, being off by just 3 labor hours can eat 150–250 dollars.

2. Add Labor Burden (The Silent Profit Killer)

Labor burden covers payroll taxes, workers’ comp, benefits, holiday pay, small tools, and training. It’s common for burden to add 30–45% on top of base wage in many trades.

• Example: Tech at 30 dollars/hour with a 40% burden → True labor cost = 42 dollars/hour
• 16 hours of labor → 672 dollars, not 480 dollars

3. Allocate Overhead (Keep the Lights On)

Overhead covers office rent, trucks, insurance, software, phones—everything that keeps you in business. Many contractors allocate 10–20% of total direct cost as overhead.

• Example: Direct cost 9,800 dollars → Overhead at 15% = 1,470 dollars

4. Add Contingency (Because Stuff Happens)

Small jobs often benefit from 3–5% contingency; complex remodels may need 5–10% to cover unknowns.

• Example: 11,270 dollars (direct + OH) x 5% contingency = 563.50 dollars

5. Apply Your Target Margin (Not Markup)

Choose your required margin first (commonly 15–30% depending on risk and overhead). Convert to markup to set price.

• Example Full Walkthrough:
  1. Direct cost (materials 5,200 dollars + labor burdened 2,240 dollars + subs 1,800 dollars + equipment 560 dollars) = 9,800 dollars
  2. Overhead at 15% = 1,470 dollars → Subtotal = 11,270 dollars
  3. Contingency at 5% = 563.50 dollars → Cost basis = 11,833.50 dollars
  4. Target margin 20% → Markup 25% → Selling price = 11,833.50 x 1.25 = 14,791.88 dollars (round to 14,792 dollars)
  5. Profit check: 14,792 - 11,833.50 = 2,958.50 dollars, which is ~20% of sell price

6. Sanity Check Time

• Compare price to recent similar jobs (size, duration, crew mix)
• Check crew capacity (do you need overtime? Add it now)
• Review risk factors (occupied home, unknown structure, lead times)

A 10–15 minute review can prevent a week of headaches.

Common Pricing Mistakes Contractors Make

Confusing Markup and Margin

Slapping on a 20% markup when you need a 20% margin is a fast way to come up short. Solution: Always translate desired margin into markup before pricing.

Skipping Labor Burden

Base wage is not your labor cost. Add taxes, insurance, benefits, small tools, and paid time off. Missing burden can wipe 5–10 points off margin instantly.

Underestimating Overhead

Overhead doesn’t show up on site, but it drains profit if ignored. Track it monthly and set a standard percent (e.g., 12–18%) until your analytics refine it.

Discounting Without Recalculating Margin

That friendly 5% discount? On a job priced for a 15% margin, it can cut your profit by more than half. If you discount, reduce scope or options to keep your target margin.

No Post-Job Costing

If you’re not comparing estimated vs actual hours and materials within 48–72 hours of completion, you’re guessing. Use those results to tune burden, overhead, and contingency for the next bid.

Use Tools To Speed Up And Safeguard Pricing

You can do all this on paper, but why? Time is money.

• Donizo Margin Estimator (Autopilot): Run what-if scenarios fast. Plug in cost basis and target margin to get the correct markup and selling price in seconds. Test 15%, 20%, and 25% margins side by side.
• Templates (Ascension/Autopilot): Build trade-specific templates with your standard overhead and contingency so you don’t start from zero every time.
• Analytics Dashboard (Ascension): Spot patterns—where jobs leak hours, which trades need higher contingency, and which crews hit targets.
• Voice to Proposal (All Plans): Capture scope, site notes, and photos on site. Convert to a clean, branded PDF and send while details are fresh.
• E‑Signature Integration (All Plans): Get legally binding acceptance so the scope and price are locked.
• Invoice Management (Ascension/Autopilot): Convert accepted proposals to invoices in one click and track payments. [Learn more about invoicing]

Many contractors find these tools easily save 2–3 hours per week and reduce back-and-forth by half on small projects.

Pricing Scenarios You Can Steal

Let’s pressure-test the math.

1. Small Repair (1 Tech, Half Day)

• Direct: Materials 180 dollars; Labor 4 hrs x 42 dollars burdened = 168 dollars → 348 dollars
• Overhead 15% = 52 dollars → 400 dollars
• Contingency 5% = 20 dollars → Cost basis 420 dollars
• Target margin 25% → Markup 33.3% → Price ≈ 560 dollars
• Profit check: ~140 dollars profit, about 25% margin

2. Mid Kitchen Refresh (2 Weeks, 2 Crew + Sub Trades)

• Direct: Materials 7,800 dollars; Labor 160 hrs x 45 dollars burdened = 7,200 dollars; Subs 4,200 dollars; Equipment 600 dollars → 19,800 dollars
• Overhead 12% = 2,376 dollars → 22,176 dollars
• Contingency 7% = 1,552 dollars → Cost basis 23,728 dollars
• Target margin 22% → Markup 28.2% → Price ≈ 30,410 dollars
• Profit check: ~6,682 dollars profit, about 22% margin

3. Exterior Reno With Unknowns (4 Weeks, Weather Risk)

• Direct: Materials 12,500 dollars; Labor 320 hrs x 44 dollars burdened = 14,080 dollars; Subs 6,400 dollars; Equipment 1,200 dollars → 34,180 dollars
• Overhead 18% = 6,152 dollars → 40,332 dollars
• Contingency 10% (risk, weather, access) = 4,033 dollars → Cost basis 44,365 dollars
• Target margin 18% → Markup 22% → Price ≈ 54,125 dollars
• Profit check: ~9,760 dollars profit, about 18% margin

Notice how higher risk pushes contingency up. That keeps margin honest when surprises hit.

FAQ

What is the difference between markup and margin?

Markup is the percentage you add to cost to get your selling price. Margin is your profit as a percentage of the selling price. If your cost is 10,000 dollars and you price at 12,500 dollars, your markup is 25% but your margin is 20%. Always set your target margin first, then convert it to markup.

What markup gives me a 20 percent margin?

To get a 20% margin, you need roughly a 25% markup. Use the conversion formula: Markup = Margin ÷ (1 - Margin). So 0.20 ÷ 0.80 = 0.25. Multiply your cost by 1.25 to get the selling price and you’ll land on a 20% profit margin of the sell price.

How much should I add for overhead and labor burden?

Many contractors find labor burden runs 30–45% over base wage, and overhead allocation commonly ranges 10–20% of direct cost. Your numbers may vary. Track actual payroll taxes, insurance, benefits, rent, trucks, and software for 2–3 months, then set a standard percentage and refine with job costing.

Should I discount to win the job?

Only if you adjust scope or options to keep your target margin. A 5% discount can drastically reduce profit on already tight jobs. If a client needs a lower price, downgrade finishes, reduce scope, or extend schedule—don’t just slash the number. Recalculate margin after any change.

How can software help me price jobs faster?

Use tools that capture scope on site and automate the math. Donizo’s Voice to Proposal helps you collect details; templates standardize overhead and contingency; the Margin Estimator (Autopilot) converts margin to markup instantly; and E‑Signature locks the scope. Many contractors report saving 2–3 hours per week with this workflow.

Conclusion

Price with intention, not instinct. Build your job price in order: direct costs, labor burden, overhead, contingency, then apply the correct markup to hit a clear margin. A few accurate numbers—like 30–45% labor burden, 10–20% overhead, and 3–10% contingency—can protect 5–10 margin points on every job. Want to speed it up? Use Donizo’s Voice to Proposal to capture scope fast, get E‑Signature to lock approval, and run scenarios with the Margin Estimator in Autopilot. Try Donizo free to send proposals, then upgrade when you’re ready to dial in profits.