Markup vs margin: the difference for contractors

Markup is the percentage you add on top of your cost. Margin is the percentage of the final price that you keep. A $1,000 job with a 25% markup sells for $1,250: the $250 is 25% of the cost but only 20% of the price, so a 25% markup gives a 20% margin.

Updated October 30, 2026

The two formulas

• Markup % = profit ÷ cost × 100
• Margin % = profit ÷ price × 100

To go from one to the other:

• Margin = markup ÷ (100 + markup) × 100
• Markup = margin ÷ (100 − margin) × 100
• Price for a target margin = cost ÷ (1 − margin)

Or skip the math and use the free markup vs margin calculator.

Markup to margin table

Margin is always smaller than markup, and the gap grows as the numbers get bigger.

Why it matters

Say you know you need to keep 30% of every job's price to cover your office, vehicle, insurance and profit. If you add 30% on top of cost, you only keep about 23% of the price. Over a year of jobs, that gap is a lot of money you thought you had.

The most common mistake: thinking "I need 30%, so I mark up 30%." You need about a 43% markup to keep 30% of the price.

It also matters when you talk to other people. An accountant, a lender or a business partner almost always talks in margin. A supplier or another contractor often talks in markup. When someone says "we run at 25%", ask which one they mean.

A worked example

Example numbers only. Prices vary by region; always check local costs.

• Materials: $3,000
• Labor (your full cost, not just wages): $2,000
• Total cost: $5,000
• Target margin: 30%
• Price = $5,000 ÷ (1 − 0.30) = $7,142.86
• Profit = $2,142.86, which is a 42.9% markup on cost

Sales tax goes on top of the price and is not part of your margin.

Now check the other way. If you had used a 30% markup instead, the price would be $6,500 and the profit $1,500. That is only a 23.1% margin, and $642.86 less on this one job than you planned.

Which one should you use?

• Use margin when you plan your year: "I need to keep 30% of what customers pay me."
• Use markup when you build a quote: it is easier to add a percentage to each cost line.
• Just make sure the markup you use gives the margin you need. Write that markup down and use it every time.

Some contractors use a different markup on materials and labor. That is fine, as long as the whole job lands on your target margin.

How to set your target margin

Your target margin should come from your own numbers, not from a rule of thumb you heard on a job site.

1. Add up your yearly overhead. Vehicle, insurance, tools, phone, software, office, accounting, advertising and licenses. Say it comes to $40,000.
2. Decide your yearly profit. This is what the business keeps after you pay yourself. Say $20,000.
3. Estimate your yearly sales. Use last year as a guide. Say $250,000.
4. Divide. ($40,000 + $20,000) ÷ $250,000 = 24%. That is the share of each job's price you need to keep, on top of the job's own costs.
5. Turn it into a markup. 24 ÷ (100 − 24) × 100 = about 31.6%. That is the markup to put on your job costs.

Example numbers only. Run yours again whenever your overhead changes, for example a new truck or a new hire. If a job is small or risky, you can add more. If you lower your markup to win a job, know exactly how much margin you are giving up.

How Vorkeon handles it

In Vorkeon you set your overhead and profit once in your business settings. Every quote, manual or AI, uses them, and the quote shows each cost line so you can see what you keep. On the Crew plan and up, job costing compares what you quoted with the real hours and materials, so you can see your real margin after the job. See how to price a job for setting overhead.

Read next

Markup vs margin calculator for contractorsHow to price a jobContractor hourly rate calculatorHow to write a quoteFree calculators