Markup versus margin
Markup is not margin, and the difference is costing you money
This is the most expensive misunderstanding I see in building businesses, and it's not a small one. It quietly takes thousands of dollars off every job, and most people applying it have no idea it's happening.
Here it is in one line. Markup is what you add to your cost. Margin is what you keep out of your price. They are not the same number, and using one when you mean the other is a straightforward way to lose money on work you've priced carefully.
What it looks like on a real job
Say a job costs you $500,000 to build.
You add 20% markup
Cost $500,000
Price $600,000
Profit $100,000
Actual margin 16.67%
You wanted a 20% margin
Cost $500,000
Price $625,000
Profit $125,000
Required markup 25%
Same job, same costs, same intention. A $25,000 difference in your pocket.
Run five jobs that size in a year and that's $125,000 you thought you'd priced for and didn't.
Why it happens
Because both numbers get called "twenty percent" in conversation, and nobody stops to ask twenty percent of what.
Markup is measured against your cost. Margin is measured against your price. Your price is always the bigger number, so the same percentage applied to it produces a smaller result. That's the whole trick, and it's why markup always looks better than the margin it actually delivers.
The gap also widens as the percentage climbs, which means the more profitable you're trying to be, the more this costs you.
The table to keep next to your quoting
If you want this margin, apply this markup:
10% margin 11.1% markup
15% margin 17.6% markup
20% margin 25.0% markup
25% margin 33.3% markup
30% margin 42.9% markup
35% margin 53.8% markup
40% margin 66.7% markup
If you'd rather do it yourself, the sum is your desired margin divided by one minus your desired margin. For a 30% margin, that's 0.30 divided by 0.70, which gives you 42.9%.
The bit that makes it worse
This lands on top of two other things that are usually already going wrong.
If your labour isn't costed properly, the cost you're marking up is too low to begin with, so the error compounds. And if your overheads aren't built into your pricing, that margin isn't really margin at all. It's just the money that keeps the lights on, and you're calling it profit.
Get those two right first, then apply the correct markup, and the number at the bottom of the job finally means what you think it means.
Where to start
Take your last completed job. Work out what it cost you and what you charged. Divide the profit by the price, not by the cost. That's your actual margin, and for a lot of builders it's the first time they've seen the real number.
If it's lower than you expected, you're not alone and it's fixable. Book a free 30-minute call and bring that job with you.