The Costly Mistake Between Margin and Markup
Many tradespeople calculate their costs, add a 20% markup, and assume they are making a 20% profit margin. In reality, a 20% markup produces only a 16.6% margin! If your company overhead requires an 18% margin to break even, that confusion turns a seemingly profitable estimate into an outright operating loss.
The Core Formulas
Understanding the difference is straightforward once you separate cost basis from total revenue:
- Markup Percentage: (Selling Price - Cost) / Cost × 100
- Profit Margin Percentage: (Selling Price - Cost) / Selling Price × 100
To calculate your true breakeven rate and compare markup against net margin instantly, try our free browser utility: Free Contractor Markup & Margin Calculator.
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