Overhead and profit — markup vs. margin
Markup and margin are not the same percentage, and the difference is where new contractors quietly go broke. Set the margin first, then back into the markup.
In this series
Your direct cost isn't your price
On top of direct cost you have to add two things:
Overhead is the cost of being in business. Your truck, insurance, phone, software, and the hours you spend estimating jobs you don't win.
Profit is your reward for taking the risk.
You add both by applying a markup. Your markup has to cover overhead and profit. If it only covers profit, your profit is quietly paying your phone bill.
The concept most contractors get wrong
Markup and margin are not the same percentage. Same dollars, different denominators.
Take a job that costs you $1,000 and sells for $1,500. The profit is $500.
| Formula | This job | |
|---|---|---|
| Markup | profit ÷ cost | $500 ÷ $1,000 = 50% |
| Margin | profit ÷ price | $500 ÷ $1,500 = 33% |
A 50% markup is only a 33% margin. They describe the same dollars from different sides.
Decide the margin first
Pick the margin your business needs, then back into the markup that produces it.
| If you want this margin… | …mark up your cost by |
|---|---|
| 10% | ≈ 11% |
| 20% | 25% |
| 33% | 50% |
| 50% | 100% |
The formula behind the table: markup = margin ÷ (1 − margin). Put it in your estimating spreadsheet once and you never have to think about it again.
- Chapter 6 of 13
Estimating labor — the real cost
An employee who earns $25 an hour costs you far more than $25. That gap is labor burden, and forgetting it is a silent profit-killer.
- Chapter 12 of 13
Putting it together — one full bid
The whole pipeline on one small job, a deck, with illustrative numbers — so you can see exactly how a takeoff becomes a price.
