Markup and margin get treated like the same word. They are not. Markup is a percentage of cost. Margin is a percentage of the selling price. Same profit dollars. Different base. Different number.
That mix-up lands on real tickets. You add 25% on top of cost, send the quote, and assume the job is a 25% job. It is not. A 25% markup is a 20% margin. The gap is the math, not a rounding issue.
This post walks one whole-job ticket (labor, materials, overhead, then profit) so you can see both percentages on the same price. The numbers below are a made-up example. They are not earnings, volume, or ranking claims.
Markup and Margin Are Different Math
Two formulas. Know which one you are using before you pick a percentage.
Cost is what that ticket took to produce: labor, materials, and the overhead you allocate to the job. Price is what the customer pays. Profit is the dollars between those two.
Price is larger than cost (if you are not losing money), so the same profit is a smaller percentage of price than of cost. That is the whole issue. 25% of cost is not 25% of price.
The usual slip: you want a 25% margin, you type 25% into a markup field, and you quote a 20% job without noticing. Material markup and job profit margin are separate things. Use them that way.
One Ticket, Two Percentages
Here is a made-up example ticket. Use it to see the relationship, then replace every line with the job in front of you.
How you set that overhead line is its own calculation. The post on what overhead percentage a contractor should use walks that rate from your own books. This ticket just needs a number so the rest of the math is visible.
Now apply a 25% markup to that cost basis.
Same ticket. Same $360. 25% markup. 20% margin. If you told yourself this was a "25% job," you overstated the share of the price you keep.
To actually land a 25% margin on this same cost basis, the price has to be higher. Margin uses the selling price as the denominator, so you solve for price first.
You needed a 33.3% markup to keep 25% of the selling price. That is not a trick. Price has to be large enough that 25% of it still equals the profit you wanted. On this example, treating 25% markup as 25% margin underquotes the job by $120 ($1,920 − $1,800).
Why the Gap Matters Before You Send the Quote
The $120 on this example is not a rounding error. It is the profit you thought you were putting in the price and did not. One ticket that size is easy to shrug off. The habit is the problem: every job quoted from a markup percentage you mentally labeled "margin" is priced short of the share you meant to keep.
The gap also stacks with other leaks. If materials go through at cost, you are not paying yourself for sourcing, handling, and the risk of buying the product. That line is how to mark up materials as a contractor. It is not the same as job profit. If you skip material markup and treat markup as margin, you cut the ticket twice.
Once the percentages are honest, compare the job's real margin to a healthy range for your kind of work. Those ranges live in contractor profit margins by trade. This post does not restate them. Calculate first, then compare.
How to Convert a Target Margin Into Markup
When you know the margin you want, do not type that same percentage into a markup box. Convert it.
Then check the other direction after you have a price: profit ÷ price. If that is not the margin you meant, the quote is wrong even if the markup field looks familiar.
Run the Same Ticket in the Calculator
Do not walk this once on a napkin and then go back to gut feel. Put labor hours and rate, material cost, material markup, overhead, and the profit margin you actually want into the job profit calculator. The suggested charge is built from those pieces. The profit margin it shows is margin (profit ÷ price), not markup.
Two fields, two jobs. Markup on materials recovers procurement. Profit margin is the return on the whole ticket. Open the calculator, drop in the job in front of you, and look at both. They should not be the same number just because they are both percentages.
Frequently Asked Questions
What is markup vs margin on a contractor job?
Markup is profit divided by cost. Margin is profit divided by the selling price. On the example ticket, $360 on $1,440 of cost is 25% markup. That same $360 on an $1,800 price is 20% margin.
Why isn't a 25% markup a 25% margin?
The percentages use different denominators. Markup uses cost. Margin uses price. Price is cost plus profit, so the same dollars are a smaller share of price than of cost.
What markup do I need if I want a 25% margin?
A 33.3% markup. Price = cost ÷ 0.75. On the example, $1,440 becomes $1,920, not $1,800.
Is the markup on materials the same as job profit?
No. Material markup pays you for sourcing, handling, storage, and the risk of buying the product. Job profit is what remains on the whole ticket after labor, materials, overhead, and the rest of the cost stack. The materials line is covered in how to mark up materials as a contractor. Job-level context is in contractor profit margins by trade.
Should I set my price from markup or from margin?
Build cost from the job (labor, materials, overhead). Set the selling price from the margin you want to keep, which means converting that margin into the markup that produces it. Then confirm: profit ÷ price. If you only add a familiar markup percentage and never check margin, you will systematically overstate how much of the ticket you keep.
The Bottom Line
A 25% markup is not a 25% margin. On the example ticket it is 20%. If you want 25% of the selling price, you need about a 33.3% markup on cost. Walk labor, materials, overhead, and profit on the actual job, then check both percentages before the quote goes out. Use the job profit calculator so the margin you see is the one the customer price actually produces.
Results are estimates for educational purposes only. Consult a licensed tax professional for advice specific to your situation.
