Markup and margin describe the same profit from two different angles, which is why contractors often confuse them. Markup measures profit against cost. Margin measures profit against the final selling price. The percentages are not interchangeable.
Markup vs margin: the simple difference
If a job costs £10,000 and you add a 30% markup, the selling price becomes £13,000. Your £3,000 profit is not a 30% margin. It is a 23.1% margin because £3,000 is 23.1% of the £13,000 selling price.
The core formulas are:
- Markup % = Profit ÷ Cost × 100
- Margin % = Profit ÷ Selling Price × 100
- Selling price for a target margin = Cost ÷ (1 − Target Margin)
What markup do you need for a target margin?
| Target gross margin | Required markup on cost |
|---|---|
| 20% | 25.0% |
| 25% | 33.3% |
| 30% | 42.9% |
| 35% | 53.8% |
| 40% | 66.7% |
| 50% | 100.0% |
Why this matters on real jobs
A pricing mistake repeated across every estimate can create a large annual profit gap. Contractors usually feel this when revenue looks healthy but cash and profit are weaker than expected. That often happens because the quoted selling price was built from a markup percentage while the owner was mentally targeting the same percentage as margin.
For example, if your full job cost is £20,000 and you want a 30% gross margin, adding 30% to cost produces a £26,000 selling price. That only gives a 23.1% margin. To achieve a true 30% margin, the selling price needs to be about £28,571.
Start with the correct cost base
Even a perfect margin formula will fail if the cost number is incomplete. Your cost basis should include the direct costs that genuinely move with the job, such as labour, materials, subcontractors, plant or equipment hire, disposal and other job-specific costs. Depending on how you price, you may also need to allow for overhead separately.
When to use markup and when to use margin
Markup is useful as a quick pricing multiplier. Margin is usually more useful when you want to understand how much of the final selling price remains after direct cost. The practical approach is to decide the margin you need, convert that target to the required selling price, and then use the equivalent markup if your estimating process is built around markup.
A faster way to price from margin
MarginRidge Studio's Markup vs Margin Pricing Calculator lets you enter direct job cost and a target gross margin, then calculates the selling price, gross profit and equivalent markup automatically. The downloadable bundle includes GBP, USD, CAD, AUD and NZD editions.
If you need estimating, job costing, change orders and invoice tracking in one workflow, see Contractor Profit OS.