Contractor Markup and Margin Calculator
Enter your costs and the profit you want, and this works out the price to quote. It always shows the markup and the margin together, because they are different numbers and treating them as the same is the most expensive arithmetic mistake in contracting.
Markup and margin are not the same number
Markup is a percentage of your cost. Margin is a percentage of your price. Because the price is always the larger of the two, the same job always shows a smaller margin than markup, and the gap widens as the numbers rise.
Add 20 per cent to a $10,000 job and you quote $12,000. The $2,000 profit is 20 per cent of the cost, so that is a 20 per cent markup, but it is $2,000 out of a $12,000 price, which is a 16.7 per cent margin. A contractor who believed they were earning a 20 per cent margin is short by a sixth of their expected profit on every job.
| Markup on cost | Resulting margin |
|---|---|
| 10% | 9.1% |
| 15% | 13.0% |
| 20% | 16.7% |
| 25% | 20.0% |
| 33.3% | 25.0% |
| 50% | 33.3% |
| 100% | 50.0% |
To convert between them: margin equals markup divided by one plus markup. Markup equals margin divided by one minus margin. If you want a 25 per cent margin you must add 33.3 per cent to cost, not 25.
Why overhead is entered separately
Direct costs are the ones you can point at on a specific job: the materials that went into it, the hours worked on it, the subcontractors and the plant hire. Overhead is everything that keeps the business running whether or not that job exists: the truck, the yard, insurance, the phone, software, advertising, and the time you spend estimating work you do not win.
Overhead has to be paid out of the same money, so it must be recovered inside the price rather than out of the profit. If you add a margin straight onto direct cost, you are not making that margin, you are making it minus your entire overhead, and on a lean year that difference is the whole profit.
To find your recovery rate, take last year's overhead from the profit and loss account and divide it by last year's total direct job costs. A small contractor typically lands somewhere between 10 and 25 per cent. Recalculate it annually, and again after any significant change such as taking on office staff or a second vehicle.
Burdened labour, not the hourly rate
The labour figure should be the burdened cost, meaning what the hour actually costs you rather than what appears on the payslip. On top of the wage sit payroll taxes, workers compensation, general liability, holiday and sick pay, any benefits, and the non-productive time that is paid but not billable, such as travel between sites, loading, yard time and training.
The burden commonly adds 25 to 45 per cent to the bare wage, and it is higher in trades with expensive workers compensation classifications such as roofing. A crew member on $28 an hour may cost $38 by the time the burden is included. Estimating from the bare wage understates cost on every single job, and the error scales with how labour-heavy the work is.
Gross margin is not profit
The gross profit shown here is what is left after direct costs and recovered overhead. It is not what you take home. Out of it still come any overhead you under-recovered, the cost of rework and warranty callbacks, bad debt, financing costs on retainage and slow payers, and tax.
This is why experienced estimators treat a low single-digit margin as a warning rather than a thin win. A job priced at a 5 per cent margin has almost no tolerance for the ordinary surprises of construction: one change of ground conditions, one week of weather, or one supplier price rise between quoting and buying, and it is a loss.
Common questions
What markup should a contractor use?
There is no universal figure, because the right markup depends on your overhead rate, your risk and your market. What matters more is that the number is derived rather than copied: recover your actual overhead, then add the profit you need on the volume you can realistically deliver. A residential remodeller carrying high overhead and high risk needs considerably more than a subcontractor working on someone else's site.
Why can I not enter a margin of 100 per cent?
Because margin is a share of the price, so a 100 per cent margin would mean the job cost nothing at all. As the target approaches 100 the price rises toward infinity. If you are trying to double your money, that is a 100 per cent markup, which is a 50 per cent margin.
Should overhead go in the percentage field or in the cost fields?
Use the percentage field for general overhead that is spread across all jobs. Put anything that belongs to this job specifically into the cost fields instead: a permit, a dumpster, a specialist tool hire, or a temporary fence. Do not do both with the same item, or you will charge for it twice and lose bids you should have won.
Does this include sales tax?
No. Enter costs excluding any tax you can reclaim, and add sales or use tax to the final quote according to your jurisdiction's rules on materials and labour. Tax handling varies enough between states that building an assumption into the calculator would do more harm than leaving it out.
How do I handle a job where the client supplies materials?
Enter zero materials, but do not let the overhead recovery fall with it if your overhead is genuinely driven by labour rather than by purchasing. Client-supplied materials also carry hidden cost in delays and in your lost warranty position when the wrong item arrives, which is worth reflecting in a contingency line under subcontractors and equipment.
What is the difference between gross margin and net profit?
Gross margin is what is left after the direct cost of the work and the overhead you recovered on it. Net profit is what remains after every remaining business expense and tax. A healthy gross margin can still produce no net profit if overhead is under-recovered, if rework is frequent, or if the volume of work is too low to cover the fixed costs of the business.