You price a job, add 30% on top of your costs, and figure you just made 30%. You didn’t. You made about 23%.
That gap comes from two words that sound alike but measure different things: markup and margin. It’s easy to use them as if they mean the same thing. They don’t. Price every job off the wrong one and you can work all year and still wonder where the money went.
Here’s what each one means, how to run the math with real numbers, and a shortcut you can use on your next quote.
Markup: what you add to your cost
Markup is how much you add on top of what a job costs you. It’s a percentage of your cost.
Markup % = (Price − Cost) ÷ Cost × 100
Say a bathroom tile job costs you $1,000 in labor, materials, and supplies. You quote the customer $1,300. You added $300 to a $1,000 cost, so your markup is 30%.
Markup is the number you reach for when you build a quote. You start with what the job costs you and work up to a price.
Margin: How Much of the Price Is Left After Costs
Margin is the share of the price you keep after your costs are paid. It’s a percentage of the price, not the cost.
Margin % = (Price − Cost) ÷ Price × 100
Same tile job: a $1,300 price, $1,000 in costs, $300 left over. But $300 out of $1,300 is about 23%. That’s your margin.
Margin tells you how much of every dollar a customer pays stays with you. It’s the number to watch when you want to know if your business is healthy.
Same $300, two different numbers
Markup and margin describe the same profit. The difference is what you divide by. Markup divides by your cost. Margin divides by your price. Your price is bigger than your cost, so your margin will always be a smaller percentage than your markup.
That’s why a 25% markup gets you a 20% margin, and a 30% markup gets you about 23%.
So what if you really want to keep 30%? On that $1,000 job, you’d need to charge about $1,429. That’s $129 more than the $1,300 quote. On one job.
Three pricing mistakes to watch for
1. Treating markup like margin
This is the big one. Here’s how it usually plays out.
2. Using one markup for every job
Different jobs carry different costs, risks, and time. A job that’s mostly materials isn’t the same as one that’s mostly your labor and skill, and that makes a difference in the markup. One number for everything is easy, but different jobs may require different pricing based on labor, materials, risk, complexity, and overhead.
3. Never checking the real number
Your quote runs on estimated costs. Your real margin depends on what the job actually cost. If it ran long or materials went over budget, your margin shrank, and you won’t know unless you check. After each job, or at least once a month, compare what you quoted with what you spent. It’s one of the most useful habits you can build.
How to use both
Markup and margin aren’t competing. You use them at different times.
Use markup to build the quote. Start with your cost and add to it. It’s quick, and it works job by job.
Use margin to check the results. When the job is done or the month closes, margin shows whether you kept what you planned.
A simple routine:
- Pick the margin your business needs.
- Turn it into a price with the shortcut below.
- Use it on every quote for that type of job.
- Check your real margins on finished jobs and adjust.
The shortcut: divide, don’t add
If you know the margin you want, skip the markup math. Divide your cost by 1 minus your target margin.
Price = Cost ÷ (1 − target margin)
Want a 30% margin on a $1,000 job? $1,000 ÷ 0.70 = $1,429. Want 40%? $1,000 ÷ 0.60 = $1,667. That’s one line on your phone calculator.
Or use this table. Screenshot it, print it, tape it to your visor.
To keep 30%, you need to mark up about 43%, not 30%. Make that one change on every quote, and the $15,000 from the fence example stops slipping away.
Get your costs right first
None of this works if your cost number is off. Cost is more than materials. For most service pros, it includes:
- Your labor, whether you pay a crew or it’s your own time (give your hours a real hourly rate)
- Subcontractors
- Materials and supplies
- Vehicle and equipment costs for the job, like gas, wear, and rentals
- Other job expenses, like permits, disposal fees, or parking
Leave these out and a job can look profitable when you’re really breaking even. The “profit” is just covering costs you didn’t count. Honest costs make honest prices.
Need help keeping track of your costs? The U.S. Small Business Administration has a free guide to managing your business finances, from setting up a balance sheet to finding accounting help.
Before your next quote
Markup is how you set a price. Margin is how you find out if that price worked. They’re related, but they’re not the same, and mixing them up is an easy way for a busy business to earn less than it should.
On uSource, Buyers can compare Pros before they hire. A clear quote built on real costs is easier for a Buyer to say yes to, and it protects the profit you planned for.
Want a second set of eyes on your numbers? Small Business Development Centers offer free one-on-one business advising. Find the center nearest you.
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Keep reading: Building Your Reputation on uSource: How to Attract Customers
