Contractor Financial Guide
Construction Markup vs. Margin: The Math That Costs Subs Money
Why adding a 20% markup does not give you a 20% margin—and how pricing errors compound over a commercial project.
Interactive Test: Enter Your Job Cost
Scenario A: Adding a 20% Markup
$12,000
Actual Gross Margin: 16.7%
Profit: $2,000
Scenario B: Targeting a True 20% Gross Margin
$12,500
Actual Gross Margin: 20.0%
Profit: $2,500
In this example, confusing markup with margin leaves $500 of unrecovered revenue on the table.
The Difference Between the Formulas
Markup is the percentage added directly to your cost to arrive at a selling price:
Markup Price = Direct Cost × (1 + Markup %)
Gross Margin is the percentage of the final contract price that is retained as profit after direct expenses:
Margin Price = Direct Cost ÷ (1 - Margin %)