Contractor & construction
Contractor Markup & Margin Calculator
Converts between markup and margin, which is where contractors most often lose money.
Result
Overhead is entered per job. If you only know overhead as an annual figure, divide it by the number of jobs you run in a year, or use the break-even calculator to work it out.
Get a Free Business AuditHow the calculation works
Markup is measured against cost and margin against price, and the calculation converts between them in both directions. Margin equals markup divided by one plus the markup; markup equals margin divided by one minus the margin. Both figures are shown because using one while planning around the other is the standard error.
What moves the number
- Whether the figure in use is markup or margin.
- Completeness of the cost base.
- Overhead recovery, which has to be inside the uplift.
- Consistency across job types.
Where this one goes wrong
A 50% markup is a 33.3% margin, so a contractor who needs a 50% margin and applies a 50% markup is a third short on every job, which across a year is a substantial amount of money that never appears as an identifiable loss. Price to margin by dividing cost by one minus the margin. The cost base is the other half, since a markup applied to a cost that omits labour burden, waste or small tools recovers less than it looks like it does.
Before you quote
- Decide whether you are working in markup or margin and say so.
- Price to margin by dividing cost by one minus the margin.
- Check the cost base includes burden, waste and consumables.
Questions
About this calculator
If I need a 35% margin, what markup do I apply?
Divide the margin by one minus itself: 0.35 divided by 0.65 gives about 54%. Applying a 35% markup instead produces roughly a 26% margin, and that shortfall applies to every job priced that way.
Why does this error persist in contracting?
Because it never appears as an identifiable loss. The jobs come in, the invoices are paid, and the business is simply less profitable than planned by a consistent amount that nothing in the accounts labels as the cause.
What should the cost base include?
Burdened labour rather than wages, material including waste, equipment, subcontractors, permits and consumables. A markup on an incomplete cost base recovers less than it appears to, and the gap is invisible until the margins are measured.
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How to use this calculator
- Material cost ($). Enter your own figure; the page starts at $900.
- Labour cost ($). Fully burdened, wages plus taxes, insurance and benefits.
- Overhead allocated to this job ($). Truck, fuel, software, office, insurance. The share this job should carry.
- Target net margin (%). The share of the selling price you want to keep as profit.
The result updates as you type, so you can try a figure, see what it does to selling price, and change it back. Nothing you enter is sent anywhere or saved.
A worked example
These are the figures the calculator opens with. Every number in the results column below is produced by the same calculation the page runs, so you can follow it through before putting your own figures in.
What goes in
| Input | Value |
|---|---|
| Material cost | $900 |
| Labour cost | $700 |
| Overhead allocated to this job | $300 |
| Target net margin | 25% |
What comes out
| Result | Value |
|---|---|
| Selling price main result | $2,533 |
| Total cost | $1,900 |
| Profit on the job | $633.33 |
| Required markup on cost | 33.3% |
To keep a 25% margin you must mark this job up by 33.3%, not 25%. Pricing at cost + 25% would leave you roughly 20.0% margin instead.
How sensitive the answer is
Holding everything else steady and changing only material cost, this is what happens to selling price. It is worth knowing which of your inputs the answer actually hinges on, and which barely move it.
| Material cost ($) | Selling price |
|---|---|
| $450 | $1,933 |
| $675 | $2,233 |
| $900 example above | $2,533 |
| $1,350 | $3,133 |
| $1,800 | $3,733 |
Every other input is held at the example value while this one changes, which is not how a real job behaves. Treat it as a guide to which number matters most, not as five separate quotes.
What each figure means
- Material cost ($)
- A money amount, starting at $900.
- Labour cost ($)
- Fully burdened, wages plus taxes, insurance and benefits.
- Overhead allocated to this job ($)
- Truck, fuel, software, office, insurance. The share this job should carry.
- Target net margin (%)
- The share of the selling price you want to keep as profit.
What the results tell you
| Result | What it is |
|---|---|
| Selling price | The headline result. A money figure. |
| Total cost | A money figure. |
| Profit on the job | A money figure. |
| Required markup on cost | A percentage. |
Overhead is where these go wrong
Pricing and margin figures are only as good as the cost you put in. If your cost covers parts and wages but not the van, the insurance, the phone and the unbilled hours, the markup is paying for those before it becomes profit, and the margin you think you are making is not the one you are making.
Keep going
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