This is the math mistake that quietly drains profit from contracting businesses. A 30% markup and a 30% margin sound identical. They are not — and confusing them means underpricing every job.
Markup is calculated on cost: 30% markup on $1,000 of cost = $1,300 selling price, $300 profit.
Margin is calculated on revenue: 30% margin on $1,000 cost = $1,429 selling price, $429 profit — because 30% of $1,429 is $429.
If you think you are making a 30% margin but using 30% markup — you are making a 23% margin. On $500,000 in annual revenue, that is $35,000 in profit you are leaving behind.
No. Markup is profit divided by cost. Margin is profit divided by revenue. A 40% markup equals a 28.6% margin. They only converge at 0%.
Common ranges: HVAC 30-50%, plumbing 30-50%, electrical 25-45%, roofing 20-40%, general contractor 15-25% on subs. The right number depends on your actual costs and target margin.
Margin = Markup / (1 + Markup). Example: 40% markup = 40/140 = 28.6% margin. Reverse: Markup = Margin / (1 - Margin). Example: 30% margin = 30/70 = 42.9% markup.
Service-heavy trades target 40-55% gross margin. Material-heavy trades often run 25-40%. Net profit after overhead for a healthy small contractor is typically 8-15%.
Yes. Margin determines how much cushion you have when things go wrong. A 15% gross margin leaves almost nothing after overhead. A 45% gross margin absorbs a difficult month, equipment failure, or slow collection.