Plenty of busy contractors stay busy and still don't make the money they expect. One of the most common reasons is mixing up markup and margin.
The Difference
Markup is a percentage of your cost. Margin is a percentage of your selling price. They are not the same number.
Say a job costs you $40,000 in labor, materials, and subs. You add a 20% markup:
- Price: $40,000 × 1.20 = $48,000
- Gross profit: $8,000
- Margin: $8,000 ÷ $48,000 = 16.7%, not 20%
How to Price for the Margin You Want
Price = Job cost ÷ (1 − Target margin)
For a 20% margin on that $40,000 job: $40,000 ÷ 0.80 = $50,000. That's $2,000 more than the 20% markup price, on a single job.
- 25% markup = 20% margin
- 43% markup ≈ 30% margin
- 50% markup = 33.3% margin
Where Profit Leaks After the Estimate
- Unpriced change orders. Extra work done on a handshake is often never billed. Document scope, price, and approval before the work starts.
- Not tracking actual costs against the estimate. If you only find out at the end of the job, it's too late to fix.
- Material waste and price swings. Build a waste factor into takeoffs and recheck supplier pricing on longer jobs.
- Accepting the lowest sub bid without comparing scope. A cheaper bid that excludes something you assumed was included costs more in the end.
Tools That Help
The Contractor Estimate & Job Profit Tool helps you price jobs for your target margin, and the Job Cost vs Estimate Profit Tracker flags profit erosion while the job is still running. Comparing subs? Try the free Subcontractor Bid Comparison Tool. See every tool for contractors and remodelers.
Written by Marchelle Cook, a Realtor for 26 years and a real estate investor and property manager since 2012. This article is for educational purposes only and is not accounting, tax, or legal advice.
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