How to Calculate Markup as a Contractor (The Right Way)
One of the most expensive mistakes contractors make is confusing markup and margin. It's a math error that quietly destroys profit on every job.
Markup vs. Margin — What's the Difference?
Markup is a percentage added to your costs. Margin is the percentage of the selling price that is profit.
They are not the same number. Here's where most contractors go wrong:
If your job costs $10,000 and you want to make 20% profit, you do NOT charge $12,000.
Why? Because $12,000 with a $10,000 cost gives you $2,000 profit — but $2,000 ÷ $12,000 = 16.7% margin. Not 20%.
The Correct Formula
To achieve a 20% margin, you need a 25% markup.
The formula: Selling Price = Cost ÷ (1 - Desired Margin)
| Desired Margin | Required Markup |
|---|---|
| 10% | 11.1% |
| 15% | 17.6% |
| 20% | 25% |
| 25% | 33.3% |
| 30% | 42.9% |
| 33% | 49.3% |
A Real Example
You're quoting a painting job:
- Materials: $2,400
- Labor: $3,800
- Total Cost: $6,200
You want 25% margin. What do you charge?
$6,200 ÷ (1 - 0.25) = $6,200 ÷ 0.75 = $8,267
If you had just added 25%: $6,200 × 1.25 = $7,750 — that's $517 less than you need.
Over 50 jobs a year, that error costs you $25,000.
What About Overhead?
Overhead needs to be in your cost basis before you calculate markup. Overhead includes:
- Truck payment and insurance
- Tools and equipment
- Office and admin costs
- Your own salary (if you're working the job)
- Marketing costs
- Software subscriptions
Most contractors calculate their overhead as a percentage of revenue — typically 15–25% — and add it to job costs before marking up.
Don't Do This Math in Your Head
This is why ContractorQuoteKit has a built-in markup calculator. Enter your costs, set your markup percentage, and it calculates your total automatically — correctly.
It also exports a clean PDF proposal with all the numbers clearly displayed, which builds trust with clients and helps you justify your pricing.
Try it free at contractorquotekit.com.