How to Use This Calculator
This is the single biggest pricing mistake contractors make. A 20% markup is not 20% profit margin. Not close. The confusion costs contractors thousands of dollars per year. You can mark up every job by 20% and still go broke if you don’t understand what margin actually is.
Here’s the trap: markup is a percentage of cost. Margin is a percentage of revenue (selling price). They’re inverses of each other, and the gap grows as your percentage gets higher. A contractor who thinks “I’ll add 20% to every job for profit” is actually operating on a 16.7% margin. Add 30%? That’s only a 23% margin. This calculator converts between the two so you know exactly where you stand.
To use this calculator, input your cost (labor, materials, subcontractors, equipment—the “hard” costs of doing the job) and either your target markup percentage or your target profit margin percentage. The calculator shows you the other metric and the actual dollar profit. It also shows what markup you need to hit common profit margin targets (20%, 25%, 30%) so you can bid correctly.
Real-world example: You’re a GC on a $100,000 job. Your costs are $80,000 (subs, materials, labor). If you add a flat 25% markup, that’s $20,000, and your bid is $100,000. But your profit margin is 20% ($20,000 ÷ $100,000). If you actually wanted a 25% margin, you’d need to mark up by 33.3%—bidding $106,667. That extra $6,667 is the gap between thinking markup and thinking margin.
Formula
Relationship Between Markup and Margin:
Markup % = (Revenue − Cost) / Cost × 100
Margin % = (Revenue − Cost) / Revenue × 100
Converting Markup to Margin: Margin % = Markup % / (1 + Markup %) × 100
Converting Margin to Markup: Markup % = Margin % / (1 − Margin %) × 100
Revenue Calculation: Revenue = Cost × (1 + Markup %) OR Revenue = Cost / (1 − Margin %)
Profit: Profit = Revenue − Cost OR Profit = Revenue × Margin %
When to Use This
Use this on every bid. Before you submit a proposal, you need to know: What’s my cost? What markup am I applying? What actual margin does that create? Is that enough to cover overhead, handle change orders, and make the profit I need?
For general contractors, a typical target is 8-15% margin after overhead (GC fees, insurance, office staff, equipment). For specialty contractors (electrical, plumbing), 10-20% is common. For estimators, never assume “industry standard” without running the math for your specific numbers. A 25% markup sounds safe until you realize you’re only netting 20% margin, and when you have 10% of jobs hit cost overruns or request changes that eat profit, you’re down to 18%. Add one bad job and your annual profit disappears.
Also run this when negotiating with subs or pricing labor. If a sub bids $5,000 and you’re marking up 25%, you’re charging the customer $6,250 and making $1,250. But if the sub comes in at $6,000, you’re charging $7,500 and making $1,500. The margin percentage stays the same but the dollar profit shifts. For large projects or lump-sum work, this math determines whether you break even or make bank.
Frequently Asked Questions
What’s a good markup for a general contractor?
Depends on job size and complexity, but 10-20% markup is typical (8-17% margin). Small residential GC work often runs 15% markup (13% margin) because the overhead per job is high relative to revenue. Large commercial projects might be 8-12% markup (7-11% margin) because the scale reduces per-job overhead burden. Never bid less than 8% markup unless you’re buying the client relationship or the job is guaranteed profitable and low-risk. The contractor who bids 5% markup to “beat competition” is either inexperienced or going out of business.
What’s the difference between markup and margin?
Markup is what you add to cost. Margin is what you keep from revenue. On a $100 cost with $25 profit: markup is 25% ($25 ÷ $100), but margin is 20% ($25 ÷ $125). This difference compounds. At 50% markup, you’re only at 33% margin. At 100% markup (double the cost), you’re at 50% margin. The gap between markup and margin grows because margin divides by a bigger number (total revenue, not just cost). Marking up is easy; understanding actual profit is harder.
What markup do I need for 20% margin?
Use this calculator or do the math: 20% ÷ (1 − 0.20) = 0.20 ÷ 0.80 = 0.25 = 25% markup. So to net 20% margin, you need a 25% markup. For 25% margin, you need 33.3% markup. For 30% margin (the gold standard most GCs aim for on premium work), you need 42.9% markup. These numbers are important—if you’re aiming for 25% margin but only applying 25% markup, you’re undershooting by a third.
Should I use markup or margin for bidding?
Use both. First, calculate your cost accurately. Then decide your target margin percentage based on risk, overhead, and desired profit. Then convert that to the markup percentage you’ll apply to the bid. Some estimators work in markup (especially field guys who think “add 20%”), but your accounting and profit planning should track margin. If you bid on markup alone without tracking margin, you’ll systematically underprice jobs that have cost overruns or high overhead.
What’s the average profit margin in construction?
General contracting averages 8-15% margin pre-tax, depending on market conditions and work type. Specialty trades (HVAC, electrical) often run 10-20% because they have stronger pricing power and lower overhead. New construction typically runs lower margins (8-12%) because competition is fierce and the work is well-defined. Renovation and remodeling can hit 15-25% because clients understand complexity and changes are common (meaning more revenue beyond the original bid). In slow markets, margins compress to 5-8%. In boom markets, 20%+ is achievable. Track your actual margins by job type—you’ll discover which work is truly profitable for your firm.