The two formulas
- Markup percent equals profit divided by cost.
- Margin percent equals profit divided by selling price.
A job costs you 100. You sell it for 125. The profit is 25. Markup is 25 divided by 100, which is 25 percent. Margin is 25 divided by 125, which is 20 percent. One job, two different percentages.
Why the mix-up costs money
An owner says the company needs a 20 percent margin. The estimator adds 20 percent to cost. Cost of 100 becomes a price of 120. The profit is 20, and 20 divided by 120 is under 17 percent. The job is short of the target before it starts.
How to convert
- To get the price for a target margin, divide cost by one minus the margin.
- For a 20 percent margin, divide cost by 0.80.
- To turn a markup into a margin, divide the markup by one plus the markup.
- To turn a margin into a markup, divide the margin by one minus the margin.
Which one to use
Estimators usually work in markup, because they start from cost. Accountants usually report margin, because they start from revenue. Either is fine. The rule is to say which one you mean, every time, in every meeting.
Gross and net
Be clear about what the profit number includes. Gross margin is the price minus the direct job cost. Net margin is what is left after office overhead. A markup that only covers overhead leaves no profit. Know your overhead before you set the markup.
Bidding and estimating · Updated 11 Nov 2026