Margin guide
Contractor profit margin calculator explained
Markup describes the increase over cost. Profit margin describes profit as a percentage of the selling price. They are related, but they are not interchangeable.
Markup = profit ÷ cost
Profit margin = profit ÷ selling price
A 30% markup is not a 30% margin
If a job costs $1,000 and you add a 30% markup, the selling price is $1,300 and the expected profit is $300. The profit margin is $300 divided by $1,300, or 23.1%.
To earn a 30% margin on a $1,000 cost, divide $1,000 by 0.70. The selling price is $1,428.57 and the expected profit is $428.57.
Use full cost in the calculation
The result is only as reliable as the cost estimate. Include burdened labor, material waste, equipment, subcontractors, permits, contingency and the job's share of overhead. Leaving overhead out may make gross profit look healthy while the business still struggles to cover monthly operating expense.
Set a target and a floor
The target margin is the result you plan for. The minimum acceptable margin is the lowest result you are willing to accept for a particular type of job. The floor turns negotiation into a calculation. Instead of choosing a discount by instinct, calculate the quote at the floor margin and compare it with the discounted price.
A lower margin can be a deliberate choice for a strong reason, such as filling otherwise unused capacity or serving a strategic customer. The key is that the decision is visible and does not happen by accident.
Measure the actual margin after close
Quoted margin is an estimate. Actual margin uses actual revenue and actual cost. Recording both shows whether estimates are consistently missing labor time, materials or extras. That information is more valuable than a perfect-looking estimate that is never compared with the finished job.