The two formulas
Start with the same profit dollars, then divide by a different base:
A markup is useful for adding an amount to cost. A margin shows what share of customer revenue remains after that cost. When a business says it needs a 30% gross margin, applying a 30% markup does not get there.
Worked example: $100 of loaded cost
The $30 profit divided by $100 cost is 30% markup. The same $30 divided by the $130 selling price is 23.08% margin.
Price from the margin you intend to keep
For a 30% margin on $100 of loaded cost: $100 ÷ 0.70 = $142.86. The resulting $42.86 profit is 30% of the $142.86 price.
| Target margin | Equivalent markup | Price on $100 cost |
|---|---|---|
| 20% | 25.00% | $125.00 |
| 25% | 33.33% | $133.33 |
| 30% | 42.86% | $142.86 |
| 35% | 53.85% | $153.85 |
| 40% | 66.67% | $166.67 |
The calculation is only as good as the cost
Materials alone are not loaded cost. Include true labor cost, subcontractors, allocated overhead, permits or fees you are responsible for, and a deliberate risk allowance where appropriate. Leaving a real cost out makes both the markup and margin look healthier than the job actually is.
Questions people ask
Is 30% markup the same as 30% margin?
No. A 30% markup on $100 of cost creates a $130 price and $30 of profit. That profit is 23.08% of the selling price, so the margin is about 23%.
What markup produces a 30% profit margin?
A 30% target margin requires a 42.86% markup on cost. Divide cost by 0.70 to find the price.
Should a contractor price from markup or margin?
Either can work if used consistently, but target margin makes the portion of the final selling price kept as gross profit explicit. The underlying cost still needs to include labor, overhead, subcontractors, and risk.