Plenty of shops say they "run 40% margins" when they mean they mark cost up 40%. Those are not the same number. Mixing them up underprices work every time — and the gap compounds on materials and labor-heavy tickets alike.
The definitions that matter
- Markup = profit ÷ cost. You start from cost and add a percentage on top.
- Margin = profit ÷ selling price. You express what share of the invoice you keep.
Same job, different denominators. That is why the percentages never match.
Trade math example
Parts and burdened labor cost you $1,000. You want a healthy return.
| Approach | Price | Profit | Actual margin |
|---|---|---|---|
| 50% markup | $1,500 | $500 | 33% |
| 100% markup | $2,000 | $1,000 | 50% |
| Price for 40% margin | $1,667 | $667 | 40% |
If your target is 40% margin and you only apply 40% markup, you sell at $1,400 and land at roughly 29% margin. You thought you hit the target. You did not.
Quick conversions
- Want margin from markup: margin = markup ÷ (1 + markup). Example: 50% markup → 0.50 / 1.50 = 33% margin.
- Want price for a target margin: price = cost ÷ (1 − margin). Example: $1,000 cost, 40% margin → $1,000 / 0.60 = $1,667.
Where contractors get burned
- Flat-rate books built on markup language sold as "margin."
- Material markups that ignore travel, overhead, and leads — so even a correct margin % on parts still fails at the job level.
- Comparing your "50%" to a competitor's 50% when one means markup and one means margin.
Verify the quote hits real net margin
List price is only half the story. Cost the job with burdened labor, travel, vehicle miles, materials, overhead, and lead allocation in the job profitability calculator. Confirm net margin matches what you intended — not just the markup on the parts sheet.
Check the margin on a quote
Run full job costs through the free calculator and see actual net margin, not just markup.