Markup vs margin: they are different numbers
By Srikanta M · Updated 2026-09-26 · 6 min read · Formula v1.0.0 verified 2026-09-10
Markup sale = cost × (1 + m). Margin sale = cost ÷ (1 − m). At $220 cost and 25%: markup prices $275, margin prices $293.33. The $18.33 gap comes straight out of profit.
What is each formula?
Markup (surcharge) figures on what the job costs you. Margin figures on what you charge. At the same rate, margin always prices higher because the divisor sits below one.
Estimetra computes them separately so they never mix: enter cost, overhead, then pick markup or margin.
markup_sale = cost × (1 + m); margin_sale = cost ÷ (1 − m)
How much does the same rate move price?
The table uses $220 cost ($200 direct + 10% overhead). 30% markup is not a 30% margin: $286 versus $314.29.
Same $220 cost, different method
| Rate applied | With markup | With margin |
|---|---|---|
| 10% | $242.00 | $244.44 |
| 20% | $264.00 | $275.00 |
| 25% | $275.00 | $293.33 |
| 30% | $286.00 | $314.29 |
| 40% | $308.00 | $366.67 |
How does the $220 example price out?
Start from $200 direct (materials + labor). Add 10% overhead: insurance, admin and structural travel prorated.
At 25% margin: 220 ÷ (1 − 0.25) = $293.33 before tax. Tax applies on top at your local rate.
- Direct cost: $200.00
- 10% overhead: +$20.00 → total cost $220.00
- 25% margin: 220 ÷ 0.75 = $293.33
- Tax: $293.33 × (1 + rate), applied last
When is each one used?
Use markup to secure a surcharge on cost (buy at 100, sell at 130). Use margin when you target earnings on sales (keep 25 of every 100 billed).
Never stack both on the same base: it doubles profit and prices the job out.
Worked example: $200 cost, 10% overhead, 25% margin
- Total cost: 200 × 1.10 = $220.00
- Sale: 220 ÷ 0.75 = $293.33
- With tax: $293.33 × (1 + rate)
→ $293.33 + tax (markup at 25% would price $275 + tax).
Common mistakes
- Quoting 30% markup thinking you keep 30% of sales: you keep 23.08% (66 ÷ 286).
- Applying tax before discount: tax goes on subtotal minus discount, not on gross.
- Skipping overhead: $200 direct with no 10% overhead gives away $20 per job.
From calculation to quote
Add labor, overhead and your margin, and generate the professional PDF.
FAQs
- How do I convert markup to margin?
- Margin = markup ÷ (1 + markup). 30% markup equals 23.08% margin. Reverse: markup = margin ÷ (1 − margin); 25% margin is 33.33% markup.
- What margin is normal in remodeling?
- It depends on setup and risk, but 20–30% on price is the usual solo-contractor band at 10–15% overhead. Below 15% any surprise wipes the job.
- Does a discount come out of margin?
- In full: 10% off $293.33 ($29.33) drops margin from 25% to 16.7%. Set the discount before locking margin.
- Are overhead and profit the same?
- No: overhead (10–15%) covers fixed costs; profit (markup or margin) is earnings. In that order: overhead on direct first, profit on the total.
- Where do I run this without a spreadsheet?
- In the labor and margin calculator: materials, hours and rate, overhead, markup or margin plus tax, with cost, sale and total side by side.
Formula v1.0.0 · Verified 2026-09-10 · Updated 2026-09-10 · Limits: quantity estimation, not structural design or site supervision.