Markup vs. margin:
they're not the same.

The short answer

Markup is measured against your cost. Margin is measured against your price. Because price is always bigger than cost, the same dollars of profit are always a smaller percentage of price than of cost — so your margin is always lower than your markup.

Take a job that costs you $100,000. Add a 20% markup and you bid $120,000. Your profit is $20,000 — but $20,000 out of a $120,000 price is a 16.7% margin, not 20%. Same job, same dollars, two different percentages. Contractors who treat them as interchangeable systematically underprice their work.

The conversion table

Want a 20% margin? You need a 25% markup. Want 25%? Mark up 33%.

Why the confusion costs real money

Say you've decided your business needs a 20% gross margin to cover overhead and leave a profit. If you "add 20%" to your costs on every bid, you're actually earning 16.7% — a shortfall of 3.3 points. On $3M of annual revenue, that's $100,000 a year that you priced away without ever noticing. It doesn't show up as a mistake on any one job; it shows up as a business that works hard, stays busy, and never seems to have anything left over.

It gets worse when you work backward. A contractor who wants "20 points" on a $500,000-cost job and marks up 20% bids $600,000. To genuinely earn a 20% margin, the bid needed to be $625,000. Lose that $25,000 on enough jobs and you've quietly donated your profit to your customers.

What your markup actually has to cover

The other half of the problem: markup isn't profit. The gap between your job costs and your price has to pay for everything the job doesn't see:

• Overhead — office rent, trucks, insurance, estimating time, bookkeeping, the phone that rings at 6 a.m. Most contractors in the $1M–$30M range carry overhead somewhere between 10% and 25% of revenue.
• Non-billable time — bidding jobs you don't win, warranty callbacks, drive time.
• Risk — the job that goes sideways, the sub who walks, the material price that jumps between bid and buy.
• Actual profit — the reason you own a business instead of a job.

If your overhead runs 15% of revenue and you bid at a 20% markup (16.7% margin), your true operating profit is under 2% — before anything goes wrong. That's not a pricing strategy; that's a tightrope.

Where job costing comes in

All of this assumes one thing: that you actually know what your jobs cost. If costs land in your books uncoded — or worse, get guessed at — then your "20% markup" is applied to a number that's wrong before you start. Accurate job costing is what turns markup from a habit into a decision: it tells you what each type of work really costs you, which crews and job types earn their keep, and whether the margin you bid is the margin you kept.

That last comparison — bid margin vs. final margin, job by job — is one of the highest-value reports in construction accounting. Sureties call the gap profit fade, and it's one of the first things they look for on a WIP schedule.