Markup vs. Margin: How to Price Trade Jobs and Keep Your Planned Profit

November 6, 202610 min read

Markup and margin are two ways to describe the same profit, and they are not the same number. If you price a job with a markup but plan your business around a margin, you end up with less profit than you expected. A 25% markup gives only a 20% margin.

This guide shows how to build a quote from job cost, labor burden and overhead, and how to turn a target margin into a price. It then checks the result against published margin benchmarks for trades, so you can see whether your target is realistic.

Markup vs. Margin: Same Profit, Different Denominator

Margin is profit as a percentage of revenue, which is the selling price. Markup is profit as a percentage of cost. Both start from the same profit. Only the denominator differs.

Editorial illustration of Paired carpenter’s rules with equal profit weights and unequal cost and revenue bases.

The two formulas are:

Margin = (Revenue − Cost) ÷ Revenue × 100
Markup = (Revenue − Cost) ÷ Cost × 100

Because cost is smaller than revenue on any profitable sale, markup is always the higher number. Investopedia gives a simple case: a $100 sale with a $70 cost is a 30% margin and a 42.9% markup. Same job, same profit of $30, two different percentages.

To convert, write the percentages as decimals. Margin = Markup ÷ (1 + Markup), and Markup = Margin ÷ (1 − Margin). A 50% markup gives 0.50 ÷ 1.50, which is a 33.3% margin. A 50% margin needs a 100% markup.

What Each Markup Actually Delivers

The gap grows as the numbers get larger. The chart shows what each common markup actually delivers.

Markup to margin conversionpercent

Data Table

Markup	Markup %	Margin %
15% markup	15	13
20% markup	20	16.7
25% markup	25	20
33.3% markup	33.3	25
50% markup	50	33.3
75% markup	75	42.9
100% markup	100	50

Source: Xero US, Margin vs markup.

Xero describes a common mistake: pricing with a 30% markup while believing it is a 30% margin leaves you with a 23.1% margin. QuickBooks calls mixing the two up one of the most common and expensive pricing mistakes small businesses make.

Here is what that looks like on a real job. Say a kitchen remodel costs you $24,000.

At a 25% markup, the price is $30,000 and you earn $6,000.
To earn a true 25% margin, the price must be $32,000 and you earn $8,000.

That is a $2,000 difference on one job. If your target is a 30% margin, you need a 42.9% markup, not 30%. The example comes from a vendor blog, but the arithmetic is standard.

The Pricing Formula

If you plan around margin, price with a divisor. The formula is:

Editorial illustration of Roofing-felt price circle with a cost-bearing arc and a reserved profit wedge.

Price = Job Cost ÷ (1 − Target Margin)

QuickBooks Canada gives a small example. An $8 cost with a 50% margin gives $8 ÷ (1 − 0.50), which is $16. A 50% markup on the same cost would give only $12 and $4 profit. The 50% margin gives $16 and $8 profit.

If you prefer markup, the formula is Price = Cost × (1 + Markup). An $80 cost with a 50% markup gives $120. That is fine as long as you know the margin it produces.

For your own jobs, follow these steps:

Decide the margin you want to keep on revenue.
Subtract it from 1. A 25% margin gives 0.75.
Divide your full job cost by that number.
Check the profit in dollars against what you planned.

The formula only works if the cost you feed it is complete. That is the next step.

Build the Real Job Cost: Labor Burden, Overhead and Billable Hours

For a service trade, cost is mostly your own time. QuickBooks notes that many service businesses build in a 2 to 3x markup over raw labor cost to cover overhead. It is a rule of thumb, not a standard. Its landscaper example shows why: labor and materials plus 20% looks fine until you count unpaid drive time, equipment maintenance and slow winter months.

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Labor burden

Wages are not the full cost of an employee. In private industry, benefits were 30.0% of employer compensation costs in June 2026. Total compensation averaged $46.89 per hour worked: $32.82 in wages and $14.07 in benefits. For full-time private industry workers, paid leave cost $4.40 per hour (8.1% of total compensation), and legally required benefits cost $3.76 per hour (7.0%).

In construction, wages averaged $36.13 per hour and benefits $15.84. That works out to about 43.8% of wages. This is calculated from BLS figures, and it is an average, not a burden rate for your trade. Your own payroll records are the better guide.

For 2026, one contractor guide lists employer Social Security at 6.2% on wages up to $184,500 and Medicare at 1.45%, which together make employer FICA of 7.65%. It also lists federal unemployment tax at an effective 0.6% ($42 per employee) when the full state credit applies.

Overhead and billable hours

Overhead includes costs such as rent, salaries and marketing. It has to be spread over the hours you can actually bill, not the hours you are paid. One guide gives this hourly rate formula: (Annual Labor Cost + Allocated Overhead) ÷ Annual Billable Hours ÷ (1 − Target Profit Margin).

Its illustrative example is fictional, not an industry average:

Wages of $56,000 plus a 25% burden give $70,000 in labor cost.
At 1,400 billable of 2,000 paid hours, that is $50 per billable hour.
Adding $35,000 of overhead adds $25 per billable hour, for a $75 cost.
A 25% margin needs $100 per hour.

Billing $60 an hour against that $75 cost would lose $21,000 over 1,400 hours. The guide also warns against counting the same cost in both burden and overhead.

Billable hours move the rate a lot. The chart uses $105,000 of annual costs and a 25% target margin.

Effect of annual billable hours on hourly rate (illustrative)USD per hour

Data Table

Billable hours	Cost per hour	Rate for 25% margin
1,600 hours	65.63	87.5
1,400 hours	75	100
1,200 hours	87.5	116.67
1,000 hours	105	140

Source: Cinderblock, How to Calculate Your Contractor Hourly Rate. Illustrative example, $105,000 annual costs, 25% target margin.

In this illustrative example, going from 1,600 to 1,200 billable hours raises the required rate from $87.50 to $116.67. Use your own time records to set the billable hours figure.

What Margins Do Trades Actually Earn?

Once you have a price, compare it with what other businesses earn. Benchmarks differ by trade, size and year, so treat them as a range, not a promise.

Editorial illustration of Trade tools beside loosely curled measuring tapes of varied lengths.

Remodelers and builders

NAHB data show residential remodelers averaged a 29.9% gross margin and a 6.3% net margin in fiscal 2024. Cost of sales was 70.1% of revenue and operating expenses were 23.6%.

Residential remodeler gross and net margin, fiscal 2018, 2021 and 2024% of revenue

Data Table

Fiscal year	Gross margin	Net margin
2018	30.1	5.2
2021	24.9	4.7
2024	29.9	6.3

Source: NAHB / Eye on Housing, Remodelers Saw Profit Margin Gains in 2024.

Gross margin hit a record-low 24.9% in 2021, and the 2024 net margin was the highest since 1996. Among single-family builders in fiscal 2023, the top 25% averaged 17.7% net, while the bottom 25% averaged −1.4% net, a loss. Gross margins of 29.7% and 17% show how far apart the two groups were.

Other trades

A study of more than 1,000 HVAC contractors by ACCA and Farmington Consulting Group found average net profit of 6%, below the 10% the researchers say is needed for sustainable growth. Flat-rate pricers averaged 7% net, against 4% for other methods. Divisor pricing was named the most effective method for installs because it builds in overhead and target net profit. That is the formula in this guide.

In landscaping, the Lawn & Landscape 2026 benchmarking report of 320 US and Canadian respondents shows average net profit margin falling from 19% to 17%, with a median of 15%. Wages are cited as a driver.

A consultant's benchmark site lists commercial subcontractor figures for the $1M to $5M revenue band. They are indicative only for residential service trades, and the source is undated.

Commercial subcontractor benchmarks by trade, $1M-$5M revenue band (before taxes)% of revenue

Data Table

Trade	Gross margin	Overhead	Net profit
Electrical	25	16	9
Plumbing	25	16	9
Mechanical	25	16	9
HVAC	24	16	8
Landscaping	22	15	7

Source: Construction CFO Solutions, Subcontractor Benchmarks: Margin and Overhead for 48 Trades.

Note the pattern. A gross margin of 22% to 25% leaves single-digit net profit once overhead is paid. This is why a target margin has to be set on the full cost, not on materials and labor alone. Gross margin ignores rent, salaries and marketing, while net margin includes them.

The Cost of Underpricing and Margin Leakage

A correct formula does not help if the price gets cut or the cost grows. A June 2025 survey of 521 licensed US contractors by JW Surety Bonds, a vendor survey, shows how common that is.

87% felt pressure to bid below cost in the past year.
77% took a loss or broke even on a project hoping for referrals or repeat work.
43% accepted jobs with profit of 5% or less.
89% said inflation is making it harder to stay profitable.

The same survey asked what pushes projects over budget. Higher than expected material costs were cited by 69%, weather or site delays by 41%, unexpected labor cost increases by 38%, client scope creep by 28% and subcontractor issues by 25%.

A Procore-partnered survey of 537 specialty trade contractors found project margins eroded by an average of 5% during construction. Only 1% never see erosion, and nearly one third report typical erosion of 7% or more. The sample skews to larger firms and covers several countries, and the publication date is not stated.

The lesson for a small trade business is simple. If a planned margin is 20% and the job leaks a few points, little is left. Materials, weather and scope creep were among the most cited causes of overruns in the JW Surety survey. As a practical suggestion from the writer, not a finding of the survey, a written scope, change orders for extra work and a buffer in the price for materials and weather can help protect the margin you planned.

A Quote Checklist to Protect the Profit You Planned

Use this list before you send any quote, whether you prepare it in PineBill or elsewhere.

Editorial illustration of Quote-check stations linking a target-price blank, job costs, overhead and recorded time.

Name your target margin as a percentage of the selling price, not of cost.
Total the direct cost: materials, subcontractors and labor hours at the burdened rate.
Add overhead per billable hour, and make sure no cost is counted twice.
Base billable hours on your own time records, not on paid hours.
Use the pricing formula to turn the full cost and your target margin into a price.
Convert the price back to a margin to confirm it, using (Price − Cost) ÷ Price.
Compare the margin with the benchmarks for your trade and size.
Write the scope down and price changes separately, so scope creep does not eat the profit.
Review finished jobs against the quote, and update your cost inputs when they drift.

Sources

Last updated: November 2026. Benchmarks come from different years and surveys, and published figures may be revised.