How do I calculate markup?
Markup is the profit you add on top of your cost, as a percentage of that cost. Multiply the cost by 1 plus the markup to get the price.
Price = cost × (1 + markup %). Markup % = (price − cost) ÷ cost × 100.
A job costs you $1,000 in materials and labor. With a 40% markup, the price is $1,000 × 1.40 = $1,400 and the gross profit is $400. That $400 is 40% of the cost, but only 28.57% of the price. That second number is your margin.
Markup vs margin
Both measure the same profit. They divide it by different things.
Markup = profit ÷ cost. Margin = profit ÷ price.
Because the price is always bigger than the cost, the margin is always smaller than the markup. To convert, use margin = markup ÷ (1 + markup) and markup = margin ÷ (1 − margin), with percentages as decimals.
| Markup | Margin | Margin | Markup needed | |
|---|---|---|---|---|
| 10% | 9.09% | 10% | 11.11% | |
| 20% | 16.67% | 20% | 25% | |
| 25% | 20% | 25% | 33.33% | |
| 30% | 23.08% | 30% | 42.86% | |
| 40% | 28.57% | 40% | 66.67% | |
| 50% | 33.33% | 50% | 100% | |
| 100% | 50% | 60% | 150% |
Why contractors mix them up
Say you want a 25% margin and add 25% to a $10,000 job cost. The price is $12,500 and the profit is $2,500. But $2,500 is only 20% of $12,500. To actually earn 25%, you need a 33.33% markup and a price of $13,333.33. Using the wrong one leaves $833.33 on the table on every $10,000 of cost.
If your accountant or a business plan gives you a target margin, switch the calculator to "Profit margin % I want" and it works out the markup for you.
How to calculate profit margin
Subtract the cost from the price, divide by the price, and multiply by 100.
Profit margin % = (price − cost) ÷ price × 100
You quoted $1,500 for a job that cost you $1,000. The profit is $500. $500 ÷ $1,500 = 33.33% margin, which is a 50% markup.
Gross profit margin vs net profit margin
This calculator gives the gross profit margin: price minus the direct cost of the job. Net profit margin also takes out overhead, such as insurance, your truck, the office, software and marketing, plus taxes. A job can show a healthy gross margin and still lose money if the margin doesn't cover overhead. So set your markup to cover overhead first, then profit.
40% markup calculator
A 40% markup multiplies cost by 1.4. Materials that cost you $250 sell for $350, with $100 of gross profit. That's a 28.57% margin. A 40% margin needs a 66.67% markup instead.
Pricing a job with markup
A job price has three parts: the direct cost (materials, labor, subcontractors, rentals), your share of overhead, and profit. There's no single right markup. It has to cover what your business costs to run, spread across the work you do in a year, and still leave the profit you want.
There are two common ways to recover overhead. Build it into your hourly labor rate, as the handyman rate calculator does, then add a smaller markup on materials. Or price labor and materials at cost and add one markup to the whole job that covers both overhead and profit. Either works, as long as you don't count overhead twice or leave it out.
Every material calculator on CanaryQuote has a contractor mode that adds your markup and labor rate to the materials list. Set your markup there once and it carries across, then send the result as an estimate.
Questions
What is the difference between markup and margin?
Markup is profit divided by cost. Margin is profit divided by the selling price. A $1,000 cost sold for $1,400 has a 40% markup and a 28.57% margin.
What margin is a 40% markup?
28.57%. Price is cost times 1.4, and the profit of 0.4 divided by 1.4 is 0.2857.
What markup do I need for a 30% profit margin?
42.86%. Divide the margin by 1 minus the margin: 0.30 divided by 0.70 is 0.4286. On a $1,000 cost, that's a price of $1,428.57.
How do you calculate profit margin?
Subtract the cost from the price, divide by the price and multiply by 100. A $1,500 job that cost $1,000 has a 33.33% profit margin.