Contractor Markup vs. Profit Margin
Understand contractor markup and profit margin with clear formulas and practical examples.
Markup and profit margin are related, but they are not the same number. Confusing them can lead to underpricing.
What is markup?
Markup measures profit relative to cost. If a job costs $100 and you apply a 25% markup, the selling price is $125.
What is profit margin?
Margin measures profit relative to selling price. That same $125 job has $25 in profit, so its margin is $25 ÷ $125 = 20%.
How to price for a target margin
To achieve a 25% margin on a $100 cost, divide $100 by 0.75. The required selling price is approximately $133.33, not $125.
Remember your overhead
A margin calculation is only useful if you understand which costs are included. Include all relevant costs when evaluating true business profitability.
Make the math easier
Use the free Contractor Hourly Rate Calculator to explore your own operating costs and target rates.
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