Learning CenterStage 1 · FoundationsGuide 4 of 22
Pricing 101
Markup vs. Margin
The pricing mix-up that quietly costs thousands.
Markup and margin both describe the profit on a job, but they measure it against different numbers. Mix them up and every bid goes out under-priced, even when the percentage looks right.
Two percentages, two different bases
Based on your cost
Markup
How much you add on top of what the job costs you.
(Price − Cost) ÷ Cost
Based on your price
Margin
How much of every dollar the customer pays you actually keep.
(Price − Cost) ÷ Price
Same $1,000 job, two very different results
A 30% markup only produces a 23.1% margin. On every $1,000 of cost, $128.57 is left on the table.
Try it with your own job
Markup or margin: what's the difference on your job?
Enter a job cost and the margin you want. See what happens if you use that percentage as a markup instead.
What the mix-up costs in a year
of gross profit that never shows up, on of job costs priced with a markup instead of a margin.
Pocket chart: the markup you need
Keep it at the estimating desk| Target margin | Markup needed | Multiply cost by |
|---|---|---|
| 10% | 11.1% | × 1.111 |
| 15% | 17.6% | × 1.176 |
| 20% | 25.0% | × 1.250 |
| 25% | 33.3% | × 1.333 |
| 30% | 42.9% | × 1.429 |
| 35% | 53.8% | × 1.538 |
| 40% | 66.7% | × 1.667 |
| 45% | 81.8% | × 1.818 |
| 50% | 100.0% | × 2.000 |
The one formula to remember
Price = Cost ÷ (1 − Target Margin)$1,000 ÷ (1 − 0.30) = $1,000 ÷ 0.70 = $1,428.57
What the mix-up costs in a year
$500,000 of job costs priced at a 30% markup instead of a 30% margin:
−$64,286
of gross profit that never shows up.
Converting between them
Margin = Markup ÷ (1 + Markup)
Markup = Margin ÷ (1 − Margin)
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