Contractor Markup vs Margin

Markup and gross margin are both percentages, but they measure different things. Understanding the difference helps contractors review a quote before it reaches the customer.

Markup is based on cost

Markup is the percentage added to job cost to produce a selling price.

Selling price = cost × (1 + markup ÷ 100)

Gross margin is based on selling price

Gross margin expresses gross profit as a percentage of the final selling price.

Gross margin = gross profit ÷ selling price

Example: $10,000 cost

If the job cost is $10,000 and you apply a 25% markup, the selling price is $12,500. Gross profit is $2,500 and gross margin is 20%.

Why the distinction matters

A markup percentage and a margin percentage cannot be treated as interchangeable. A contractor who targets a particular margin needs to convert that target into the corresponding markup rather than simply using the same percentage.

Converting target margin to markup

Markup = target margin ÷ (1 − target margin)

For example, a 20% target margin corresponds to a 25% markup on cost.

Use the calculator to check both

The ATHENA Contractor Pricing Calculator shows selling price, gross profit, and gross margin from your job cost and markup so you can review the relationship before preparing a quote.

Do not confuse gross margin with net profit

Gross margin does not automatically represent what the business keeps after every operating expense. Overhead, taxes, financing, insurance, owner compensation, and other expenses may affect final business profitability.

See the Contractor Pricing Markup Guide for additional examples.