What is the difference between markup and margin?

Markup is profit measured against your cost; margin is profit measured against your selling price. The same $50 profit on a $100 cost is a 50% markup but only a 33% margin. They describe the same dollars from different angles, which is why they are so easy to confuse.

Is a 50% markup the same as a 50% margin?

No. A 50% markup on a $100 cost gives a $150 price, which is only a 33% margin. To actually achieve a 50% margin you need a 100% markup — you have to double your cost. This gap is why pricing with markup while thinking in margin leads to underpricing.

How do I price a job to hit a target margin?

Divide your total cost by (1 minus the target margin as a decimal). For a 40% margin, divide cost by 0.60. A $100 cost becomes $167, not the $140 a 40% markup would produce. Pricing this way ensures the percentage you keep matches the percentage you intended.

Markup vs Margin for Contractors

The difference in one example

Markup and margin describe the same dollar of profit from two different angles, and that is exactly why they get confused.

Markup is measured against your cost. Margin is measured against your price. Same profit, different denominator.

Take a job that costs you $100 in materials and labour. You charge $150. You made $50.

As a markup: $50 profit ÷ $100 cost = 50% markup.
As a margin: $50 profit ÷ $150 price = 33% margin.

Same job, same fifty dollars, two very different-looking percentages. The contractor who applies a 50% markup and tells himself he is "running 50%" is actually running a 33% margin. Over a year of jobs, that gap is the difference between a comfortable business and a stressed one.

Why mixing them up costs you money

The danger is one-directional. Contractors almost always think in margin ("I want to keep 40% of what I charge") but price in markup ("I'll add 40% to my cost"). Those two sentences produce different prices, and the markup version is always the lower one.

If you want a 40% margin but you add a 40% markup, you actually land at a 29% margin. On $400,000 of revenue, the difference between 29% and 40% gross margin is roughly $44,000 you never collected — not because you lost a job, but because of a percentage you mislabelled.

This is one of the quiet ways jobs lose money. It does not show up as a disaster on any single job; it shows up as a business that is always busy and never quite ahead. See Why Contractors Lose Money on Jobs for the other leaks that compound alongside this one.

The formula to price for a target margin

To hit a target margin, do not add the percentage to your cost. Divide your cost by (1 minus the margin written as a decimal).

Target 30% margin: price = cost ÷ 0.70 (a 43% markup).
Target 40% margin: price = cost ÷ 0.60 (a 67% markup).
Target 50% margin: price = cost ÷ 0.50 (a 100% markup).

So a $100 cost at a 40% target margin should be priced at $167 — not the $140 a 40% markup would give you. Notice that hitting a 50% margin requires doubling your cost. That surprises contractors who have been adding "50%" for years.

You can check any single job with the markup calculator or the job profit calculator. To stop doing it in your head on every quote, Fieldpaid prices from your QuickBooks item list and shows the real margin on every job after it is paid — so the number you think you are running is the number you actually are.

Markup vs Margin: The Difference That Quietly Costs Contractors Money