What markup should a contractor use?
There is no single right markup. The right one covers your overhead and leaves the profit you need, and it comes from your own numbers. Contractors lose money on markup less by choosing a low one than by never seeing the choice being made.
What does markup have to cover?
Everything the job does not bill for directly. Insurance, trucks, estimating time, supervision, callbacks, and then profit. Add up a year of those costs, compare the total with a year of job costs, and you have the lowest markup your business can live on. Below that number, the business is paying for the job.
When is a higher markup the right call?
Small jobs, where fixed costs take a bigger share. Risky scope with hidden conditions. Rushed schedules. Work that needs scarce specialty labor. And any time your calendar is full, so a new job has to earn its place. A higher price is fair when you choose it with your cost in plain view.
What is the difference between markup and margin?
Markup is a percentage of your cost. Margin is a percentage of your price. They are not the same number. A 25% markup on cost leaves a 20% margin on price. To keep 25% of the price, you mark up cost by 33.3%.
On a job with $240,000 in cost, a 25% markup gives a $300,000 price and $60,000 over cost. Keeping 25% of the price takes a $320,000 price. Mixing the two up gives away $20,000 on that one job.
How do you make the markup decision on purpose, on every bid?
Keep the cost clean and add markup as its own step. Look at the cost and the price side by side before you quote. Wylie Estimates is built this way: the cost book gives material and labor, you set your markup, and you approve every line before your client sees the price.
Frequently asked questions
- Is a 25% markup the same as a 25% margin?
- No. A 25% markup on cost leaves a 20% margin on price. To keep 25% of the price, mark up cost by 33.3%.
- Should markup change by trade or by job?
- By job. Risk, size, schedule and how busy you are all justify a different markup. What should not change is that you see the decision: the same cost, shown beside the price, every time.
- What should a contractor never do with markup?
- Hide it by padding line items. Padding blurs your true cost, makes change orders hard to price, and turns the markup decision into an accident. Keep the cost clean and add markup in the open.
Price your next job from the same cost data these figures come from, adjusted for where the job is. You set your markup and approve every line before you bid.
Start your free trial7 days free, then $119 a month. Card required. We email you 3 days before the trial ends. Cancel before day 8 and pay nothing.