Markup vs margin for contractors, with a table

The formulas

• Markup % = (price - cost) / cost
• Margin % = (price - cost) / price
• Price from a markup: price = cost x (1 + markup)
• Price from a margin: price = cost / (1 - margin)
• Converting: margin = markup / (1 + markup), and markup = margin / (1 - margin)

Work in decimals: 20% is 0.20.

A worked bid with invented numbers

Your estimate for a tenant improvement job is $250,000 in direct cost and allocated overhead.

With a 20% markup:

• Price = 250,000 x 1.20 = $300,000
• Profit = 300,000 - 250,000 = $50,000
• Margin = 50,000 / 300,000 = 16.67%
• Check with the conversion: 0.20 / 1.20 = 0.1667

For a 20% margin:

• Price = 250,000 / 0.80 = $312,500
• Profit = 312,500 - 250,000 = $62,500
• Markup = 62,500 / 250,000 = 25%
• Check: 312,500 x 0.80 = 250,000, and 0.20 / 0.80 = 0.25

The gap between the two prices is 312,500 - 300,000 = $12,500. A contractor whose business plan needs a 20% margin and who adds 20% to cost leaves that much on the table on this one job.

Conversion table

Each row is worked with the conversion formulas and rounded to two decimals.

Read it in either direction. A 25% margin needs a 33.33% markup: 0.25 / 0.75 = 0.3333. A 100% markup, doubling the cost, gives a 50% margin.

Why contractors mix them up

Estimators build a bid from cost, so they think in markup: add a percentage to the bottom line of the takeoff. Owners, accountants, sureties and lenders read the income statement, where gross profit is shown as a share of revenue, which is margin. A company that sets its target as a margin but prices with the same number as a markup will see every job come in below plan on the financial statements. Pick one convention for the company and label it on every estimate.

Layered markups

Some estimates add overhead and profit as separate steps. Apply each percentage to the base the contract or question gives. For example, cost $250,000, overhead 10% on cost gives $275,000, then profit 8% on cost plus overhead gives 275,000 x 1.08 = $297,000. Check: 8% of 275,000 is 22,000, and 275,000 + 22,000 = 297,000. That is not the same as 18% on cost, which would be $295,000. The contractor job costing and overhead guide shows where the overhead rate comes from.

Common mix-ups

• Using the markup percentage as the margin. The trap this page is about. The margin is always the smaller number.
• Dividing by the wrong base. Markup divides by cost. Margin divides by price.
• Adding stacked percentages together. 10% then 8% compounds to 18.8% on cost, not 18%.
• Forgetting overhead. A markup on direct cost only has to cover overhead and profit, so it must be larger than the profit you want.

On the NASCLA exam

Markup and margin are core arithmetic in Procurement and Contracting Requirements, 31 of the 115 scored questions. The NASCLA Contractors Guide to Business, Law and Project Management is the book to tab for estimating and pricing. Read each question for the base: "of cost" or "of the selling price".

Practice it

Run your own numbers in the free markup and margin calculator, which shows the price both ways. Try the pricing question in the NASCLA practice test. Then take the same job through job costing and overhead and see how margin shows up in contractor financial ratios. The free break-even calculator turns a margin into the sales volume that covers overhead, and the free overhead rate calculator shows the overhead markup a bid needs before profit.

Take the free 10-question check

Start the free 10-question check. It is weighted to the twelve NASCLA subject areas, needs no signup and explains every answer, so you see which area to study first.

The NASCLA Commercial course has a lesson for each of the 12 subject areas that shows which listed reference to open and how to apply it, original practice questions with every answer worked, and four timed practice exams of 115 questions on a 330-minute clock. Your scores come back by subject area, so you know where the next study hour goes. See the course.

Not affiliated with or endorsed by NASCLA or PSI. NASCLA and PSI are named only to identify the exam and its test vendor.

Sources

Show the list

• PSI Candidate Information Bulletin 1458, content outline and reference list, updated 7 Jul 2026. Retrieved 5 Nov 2026.
• NASCLA Commercial Exam, NASCLA. Retrieved 5 Nov 2026.