Mark a job up 100% and it feels like you just doubled your money. That’s the math every contractor thinks they’re doing, and it’s wrong. That’s because this math focuses on the markup and ignores the margin. Markup and margin seem interchangeable. They’re both percentages and both about pricing. Most people assume they are the same thing, but they measure two different things, off two different numbers. Confusing the two can make a job look more profitable than it actually is. Let’s break down each term and the math behind it, so you can be confident the price you’re charging is actually turning a profit.
What Markup Actually Means
Markup is the term most contractors already know. It’s baked into how bids get built. You start with a job cost, decide how much to add, and that percentage becomes your markup. It’s simple, it’s fast, and it’s usually the first number anyone learns when they start pricing work.
Say a job costs you $10,000 in materials and labor. If you mark it up 50%, you add another $5,000 on top. Your price to the customer is now $15,000.
That 50% is calculated off your cost. It answers “how much am I adding to what I spent.”
Markup % = ((Price − Cost) ÷ Cost) × 100
What Margin Actually Means
Markup calculates what to actually charge the customer, but margin (also called Gross Margin) is what you keep, measured against your revenue (price of the job), not your cost. At the end of the day, that’s a more useful number, because revenue is what hits your bank account every month. If you know your gross margin, you have a quick way to calculate what’s left to pay your monthly bills and pay you.
Same job: you charged $15,000, it cost you $10,000, so your profit is $5,000. Divide that profit by your price, and your margin is 33%.
That 33% is calculated off your price. It answers “how much did I actually keep.”
Margin % = ((Price − Cost) ÷ Price) × 100
Why This Catches Owners Off Guard
Calculate markup off cost. Calculate margin off price. That’s the whole trick. A 50% markup only gets you a 33% margin. Same job, same numbers, different percentages. Multiply your price by your markup and you think you have a lot more money coming your way than what will actually appear.
Here’s where this turns into a real problem. Say you run twenty jobs a year, each one priced with that same 50% markup you saw above. That’s 300K of revenue, but what you actually want to know is your margin – what is left after you pay the costs of the Job.
On $300,000 in revenue at that same pricing, thinking in markup terms might have you picturing $150,000 sitting around somewhere. The real number, in our scenario, is $100,000. That’s a more accurate picture of the cash available to pay all the other business overhead expenses, such as insurance, office costs, rent, and utilities. And watch out, because margin also has to cover other things to like the principal portion of your loan payments or purchasing equipment. These costs don’t directly hit your income statement, but you have to be certain there’s money in the bank to cover them.
If you plan a bonus, a new hire, or an equipment upgrade off the markup number, you’ll come up short. That’s because margin was footing the bill, and there was never enough left to cover what you had planned.
What This Looks Like for Trade Businesses
Your target Margin should depend on a few real factors, not a gut feeling:
Your overhead load. A business running lean, small crew, minimal equipment, can operate on a lower margin and still be fine. A business carrying a shop, a fleet, and an office staff needs to price on the high end, because margin has to cover a lot more before it ever becomes profit.
The risk on the job. A straightforward, predictable job with a reliable customer can be priced lower. A job with a lot of unknowns, tricky site conditions, a customer with a history of change orders, a tight weather window, should be priced higher, because margin is also what absorbs the cost when a job goes sideways.
How busy you actually are. If you’re turning down work, price at the high end. There’s no reason to take on a thin-margin job when a better-margin job is available. If work is scarce, the low end might make sense to keep crews busy, but that’s a short-term move, not a pricing strategy to live on.
None of those three factors stay put, either. Overhead grows as you add a truck or a new hire. The risk on your jobs changes as you take on different types of work. How busy you are shifts with the season. A markup that made sense against last year’s overhead and last year’s workload can quietly stop making sense. The real question isn’t just where you land in that range, it’s how often you’re checking that you still do.
How Often You Should Check Your Numbers
At a minimum, once a year, ideally around the time you’re reviewing the rest of your numbers anyway. If material or labor costs jump significantly mid-year, that’s worth an off-cycle look too, waiting for the annual review to catch a cost spike that’s already been eating your margin for six months is expensive.
The check itself doesn’t have to be complicated: pull a handful of recent jobs, calculate the actual margin on each one, and compare it to what you expected going in. If the numbers are drifting, that’s your signal to adjust before it shows up as a smaller number at year end.
Let’s Make Sure Your Pricing Is Actually Working
At Bearden Stroup & Associates, we help small business owners get real clarity on their numbers every day, including whether the price they’re charging is actually turning the profit they think it is. If you’ve been pricing off markup and want a second set of eyes on what you’re actually keeping, we’d be happy to run the numbers with you.
Reach out and let’s make sure your pricing is working as hard as you are. After all, that’s what working together is all about.