Contractor Markup vs Margin: The Number Most Trades Get Wrong
Markup is a percentage of what the job costs you. Margin is a percentage of what you charge. They are never the same number, and confusing them is the most expensive arithmetic mistake in the trades. A 25 percent markup leaves you a 20 percent margin. A 20 percent markup leaves you 16.7 percent. If you have been marking up 20 and telling yourself you make 20, you have been short on every job you have ever run.
Here is the math, the conversion worth taping to the dash, and how to build a markup that actually covers your overhead instead of hoping it does.
The one formula
Markup equals margin divided by one minus margin.
Run it the other way and margin equals markup divided by one plus markup. That is the whole thing. Everything below is that formula with real numbers on it.
One $10,000 job, priced two ways
Say a bathroom costs you $10,000 in materials, labor, and subs.
Marked up 20 percent. You charge $12,000 and keep $2,000. Two thousand divided by twelve thousand is a 16.7 percent margin. Not 20.
Priced to a 20 percent margin. Your $10,000 has to be 80 percent of the price, so the price is 10,000 divided by 0.80, which is $12,500. That is a 25 percent markup. The $500 gap is what the confusion costs on one bathroom. Run twenty of those a year and it is $10,000 of profit you thought you already had.
The conversion, memorized
To land on the margin you want, mark up by:
- 10 percent margin: 11.1 percent markup
- 15 percent margin: 17.6 percent markup
- 20 percent margin: 25 percent markup
- 25 percent margin: 33.3 percent markup
- 30 percent margin: 42.9 percent markup
- 35 percent margin: 53.8 percent markup
- 40 percent margin: 66.7 percent markup
- 50 percent margin: 100 percent markup
That last one surprises people every time. Doubling your cost does not make you 100 percent. It makes you 50.
What your markup has to cover, in order
Markup is not profit. Profit is what is left after markup pays for three things, and most underpricing happens because one of the three never got counted.
1. Labor burden. The guy you pay $28 an hour does not cost you $28. Payroll taxes alone run roughly 10 to 12 percent of the wage depending on your state and experience rating, and workers compensation is usually the biggest line after that, priced by trade class. Residential contractors commonly land between 30 and 45 percent burden all in, and high comp classes like roofing run higher. At 35 percent, that $28 wage is $37.80 in the estimate. Leave burden out and you are pricing labor more than a quarter light before markup even starts.
Then divide by hours you can actually bill. A full time employee is paid for about 2,080 hours a year, but after holidays, vacation, drive time, shop time, and warranty callbacks you are lucky to sell 1,700 of them. Burdened cost divided by billable hours is your real hourly cost, and it is always higher than the number on the paycheck.
2. Overhead. Truck payments, fuel, general liability, phone, software, the bookkeeper, and the hours you spend quoting at 9 p.m. Figure your overhead rate once: annual overhead divided by annual job costs. A shop with $96,000 of overhead running $480,000 in job costs carries a 20 percent overhead rate. That is not optional pricing. That is the cost of being open.
3. Profit. What is left after the first two are paid. Well run small contractors report pre tax net profit in the 5 to 7 percent range, and the ones above that usually got there by fixing their markup, not by working more Saturdays.
Building the number from the bottom
Take that same $10,000 of direct cost with a 20 percent overhead rate.
- Direct cost: $10,000
- Overhead at 20 percent: $2,000
- Break even: $12,000
Break even is not a price. It is the number where you worked for free. To keep 10 percent net margin, divide $12,000 by 0.90, which is $13,333. Against your $10,000 direct cost, that is a 33.3 percent markup.
Notice what happened. A contractor who "adds 20 percent" on that job charges $12,000 and nets zero. The gap between a guess and the math was the entire year of profit.
One markup does not fit every cost
For 2026, general contractor markup commonly runs 20 to 30 percent overall, but the overall number is a blend. Underneath it:
- Materials usually carry 10 to 20 percent. Lower on commodity items delivered straight to site, higher on anything you have to pick up, store, or replace when it arrives cracked.
- Subcontractors typically carry 10 to 15 percent. You are not marking up their work. You are billing for scheduling them, checking their work, and eating it when they no show.
- Your own labor carries the most, because labor is where the risk lives. Materials cost what the invoice says. Labor costs whatever the job decides.
- Small jobs need more of everything. The fixed cost of showing up does not shrink because the job did. A $400 service call with the same drive time, the same truck, and the same paperwork cannot survive a $40,000 job's markup.
Four places the margin leaks
Quoting from memory. The number you used last spring was priced off last spring's material costs and last spring's wages. Neither held.
Discounting off the price instead of the margin. On that $12,500 bathroom with a 20 percent margin, knocking 10 percent off the price takes you to $11,250. Your cost did not move, so your profit went from $2,500 to $1,250. A 10 percent discount cut your profit exactly in half. If you have to move on price, move scope with it.
Free change orders. The wall opens, there is knob and tube behind it, you handle it because you are already there. That is unbilled labor at full burden. Price it, write it, get it approved. Change order management is the difference between a busy year and a profitable one.
Not knowing what you charged last time. Repeat work is the easiest margin in the business and the easiest to give away, because you re quote from memory instead of from the record.
Where software actually helps
Nothing fixes a markup you have not decided on. What software can do is keep you from re deciding it badly at 6 p.m. on a tailgate.
In Staxen, Eddie the Estimator drafts priced line items from a spoken description of the job, using the rates you set. You review every line before it goes out, so your markup is applied the same way on the small jobs as on the big ones, whether you are in a crawlspace or at the desk. When a client asks what you charged for the same work last year, the answer is in the record instead of in your memory. If you want to pressure test your unit prices against regional numbers first, the trade pricing guides are a reasonable second opinion before you commit to a rate card.
Frequently Asked Questions
What is the difference between markup and margin?
Markup is measured against your cost. Margin is measured against your price. If a job costs $1,000 and you sell it for $1,250, that is a 25 percent markup and a 20 percent margin. The same dollars, two different denominators. Markup equals margin divided by one minus margin.
What markup should a contractor use?
For 2026, general contractors commonly run 20 to 30 percent overall, with materials around 10 to 20 percent and subcontractor costs around 10 to 15 percent. Those are starting points, not your number. Your number comes from your own overhead rate plus the profit you intend to keep, and small job specialists usually need more than a remodeler does.
Is a 20 percent markup enough?
Usually not. A 20 percent markup is a 16.7 percent margin, and once overhead of 15 to 20 percent comes out of that, there is close to nothing left. Most small contractors need a markup in the 30s just to clear a single digit net profit.
How do I calculate my overhead rate?
Add up twelve months of costs that exist whether or not you have a job running: insurance, vehicles, phone, software, office, advertising, and any admin pay. Divide by twelve months of direct job costs. A shop with $96,000 of overhead and $480,000 of job costs has a 20 percent overhead rate, so every $1,000 of job cost has to carry $200 before profit.
Does Staxen price jobs for me?
Eddie drafts the line items and starting prices from what you describe, and you adjust anything before it sends. Your first job is free with no card required, and after that it is $59 per month for one AI employee or $149 per month for all three. See the pricing page for what each one does.
Stop giving away the difference between 20 and 25. Start free with Staxen, first job on us, no card required.
Start free with Staxen: your first job is on us, no card required.