Course outline
Markup vs. margin: the mistake that quietly cuts your profit
Markup is profit as a percentage of cost; margin is profit as a percentage of the selling price. Doubling your direct cost is a 100% markup but a 50% margin. To price for a target margin, divide cost by (1 − margin): $50,000 ÷ 0.50 = $100,000. Adding a 50% markup instead gives $75,000 — only a 33.3% margin — and the difference comes straight out of your overhead and profit.
By Michael Reddy, IntelBid
After this lesson you can
- Explain the difference between markup and margin
- Convert between them and price to a target margin
- Set a gross margin that covers your overhead and your profit
What's the difference?
| Markup | Margin | |
|---|---|---|
| Profit measured against | Cost | Selling price |
| Formula | Profit ÷ cost | Profit ÷ price |
| Price from cost | Cost × (1 + markup) | Cost ÷ (1 − margin) |
| $50,000 cost, $100,000 price | 100% | 50% |
Your financial statements report margin — gross profit as a share of revenue. So if your target comes from your books or your accountant, it's a margin, and pricing it as a markup undershoots every time.
A starting point: double your direct cost
A good rule of thumb for a flooring subcontractor is to double the job's direct cost — material, labor and job-specific costs — to get your price. That's a 50% gross margin. Your overhead is paid out of that margin, and what's left is profit: if overhead runs 25% of revenue, doubling cost leaves about 25% profit.
- Direct cost $50,000
- Overhead (25% of price) $25,000
- Profit $25,000
- Direct cost $50,000
- Overhead (25% of price) $18,750
- Profit $6,250
- Left on the table $25,000
- Direct job cost (material, labor, job-specific)
- $50,000
- Target
- 50%
- Overhead (share of revenue)
- 25%
- Read as a markup: $50,000 × 1.50 = $75,000 → profit $25,000 ÷ $75,000 = 33.3% margin.
- Read as a margin: $50,000 ÷ (1 − 0.50) = $100,000 → profit $50,000 ÷ $100,000 = 50% margin (a 100% markup).
- The difference: $25,000 on this job alone.
- After 25% overhead: $100,000 leaves $25,000 profit; $75,000 leaves $75,000 − $50,000 − $18,750 = $6,250.
Conversion table
| Markup | Equals margin | Margin | Needs markup |
|---|---|---|---|
| 10% | 9.1% | 10% | 11.1% |
| 20% | 16.7% | 20% | 25.0% |
| 25% | 20.0% | 25% | 33.3% |
| 30% | 23.1% | 30% | 42.9% |
| 50% | 33.3% | 40% | 66.7% |
| 100% (double cost) | 50.0% | 50% | 100.0% |
Convert markup and margin
Markup / margin calculatorEnter your cost and a percentage, and say whether it's a markup or a margin.
- Selling price
- $75,000
- Profit
- $25,000
- Markup
- 50.0%
- Margin
- 33.3%
Read the other way — as a margin — the same 50% would price this job at $100,000, a $25,000 difference.
IntelBid's subcontract work orders price on margin by default and explain the markup equivalent. Start your free trial
Where the mistake happens
- Spreadsheets that add “50%” to cost when the owner's goal is a 50% margin.
- Subcontracted work — marking up a sub's price by a percentage and calling it margin.
- Discounts — taking 10% off a price removes far more than 10% of your profit.
- Conversations — an estimator and an owner using the same word for different numbers.
What is the difference between markup and margin?
Markup is profit divided by cost. Margin is profit divided by selling price. The same dollar profit is always a smaller percentage as margin than as markup.
What margin is doubling your cost?
50%. Doubling cost is a 100% markup: profit equals cost, so profit is half the selling price.
What margin is a 50% markup?
About 33.3%. Margin equals markup divided by one plus markup: 0.50 ÷ 1.50 = 0.333.
What margin should a flooring subcontractor use?
Enough to cover overhead and profit. A common starting point is doubling direct cost, a 50% gross margin, which leaves about 25% profit when overhead is 25% of revenue. Adjust it to your own overhead.
Key points
- Markup is on cost; margin is of price.
- Doubling direct cost = 100% markup = 50% margin.
- Your gross margin must cover overhead plus profit — price with cost ÷ (1 − margin).
Margin-first pricing on subcontracted work
When you price subcontracted scopes in IntelBid work orders, pricing defaults to margin, and the markup equivalent is explained right next to it — so a 30% figure means the same thing to everyone who touches the job.
Start your free trialEvery trial starts with a sample project loaded, so you can try this before connecting anything.
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About the author. Michael Reddy builds IntelBid, bid management software for commercial flooring subcontractors. These lessons come from the bid desk: how the work is priced, won and paid for.