Ask a contractor what he adds to cost and you’ll often hear “20 percent.” Ask what his margin is and you’ll hear the same number. Those are two different figures, and treating them as one quietly drains money from every job you price.
The same job, two different 20 percents
Markup is measured against your cost. Margin is measured against your price. Same dollars, different denominator.
Worked example, round numbers: a job costs you $1,000 in materials, labor, and overhead. You add a 20 percent markup and charge $1,200. Your profit is $200.
Now check the margin. A $200 profit on a $1,200 price is 16.7 percent, not 20. That gap is baked into the math: markup percent is always bigger than margin percent on the same job, and the spread grows as the numbers do. A 50 percent markup is a 33 percent margin. A 100 percent markup is only a 50 percent margin.
Which number your bookkeeper means
Anyone working off your books (bookkeeper, accountant, tax software) almost always means margin, because margin is profit as a share of revenue and revenue is what the books show. Anyone standing at the supply counter almost always thinks in markup, because cost is the number in front of him.
So when your numbers person says “you need 20 points on these jobs,” and you respond by adding 20 percent markup, you land at 16.7 and come up short on every single job. You did what you heard, not what was meant.
The fix is one line of arithmetic: markup equals margin divided by one minus the margin. A 20 percent margin target means a 25 percent markup. On the example job that’s $1,000 cost, $1,250 price, $250 profit, and $250 on $1,250 is 20 percent even.
Margin to markup conversion table
Find the margin you want in the left column and add the markup next to it. The last column prices a job that costs you $1,000, as an example.
| Margin you want | Markup to add to cost | Price on a $1,000 example job |
|---|---|---|
| 10% | 11.1% | $1,111 |
| 15% | 17.6% | $1,176 |
| 20% | 25% | $1,250 |
| 25% | 33.3% | $1,333 |
| 30% | 42.9% | $1,429 |
| 35% | 53.8% | $1,538 |
| 40% | 66.7% | $1,667 |
| 50% | 100% | $2,000 |
Read it the other way and it answers the question contractors actually ask at the counter: a 50 percent markup is a 33 percent margin, and doubling your cost is a 50 percent margin, not 100.
Where the confusion costs real money
Two places it bites hardest. Volume first: on the example above, the gap is $50 per $1,000 of cost. Price a whole season of work off the wrong number and that’s profit you earned and never charged.
Discounting second. Knock 10 percent off the $1,200 example price and you gave up $120 of a $200 profit. The customer heard “small discount.” Your margin lost more than half.
Bake the right number into your rates
Do the conversion once, put the result into your per-square-foot or per-foot rates, and stop re-deriving it in the driveway. Rates that already carry your margin protect you on big jobs when you send an itemized quote, and a floor price protects you when pricing small jobs. PriceDesk runs this math from your saved rates, on your phone, in about ten seconds. The trial is free for 14 days, no card needed.