Why is my margin lower than my markup?

Markup divides profit by cost; margin divides the same profit by the larger price. Markup is always the bigger number. An 18% markup is a 15.3% margin, and a 50% markup is a 33.3% margin.

What markup do I need for a 25% margin?

33.3%. The conversion is markup = margin / (1 - margin), so as target margins rise the required markup rises much faster — a 50% margin needs a 100% markup.

Should overhead go in the cost or come out of the markup?

In the cost. If overhead is left to be covered by markup, then markup stops being profit and the margin figure describes nothing. Recover overhead as a cost and let markup be the profit it is supposed to be.

Construction job margin calculator

Price a job the way an estimate is actually built, then see what margin the markup earns. An 18% markup is a 15.3% margin, and quoting as though they were the same is how a profitable-looking job comes in short.

Materials

Labour hours

Labour rate

$ / hr

Overhead

% of direct

Contingency

% of direct

Markup you add

Applied to cost — this is not your margin.Margin you actually want

Bid price: $28,578
Total cost: $24,218
Margin it earns: 15.3%

Labour $9,628 plus materials gives $20,878 direct; overhead and contingency bring cost to $24,218. Your 18% markup adds $4,359 — which is a 15.3% margin, not 18%. To actually earn 25% you would add 33.3% markup and bid $32,291 — $3,714 more than this quote.

The formulas

direct cost = materials + labour hours x labour rate

total cost = direct + direct x overhead% + direct x contingency%

bid price = total cost x (1 + markup%)

margin earned = (bid price - total cost) / bid price

markup needed for a target margin = margin / (1 - margin)

Overhead and contingency are taken on direct cost, and markup on the total. Applying markup to direct cost instead quietly gives away the overhead recovery.

A worked example

$11,250 of materials and 166 labour hours at $58, with 11% overhead and 5% contingency:

labour = 166 x 58 = 9,628 → direct = 20,878

total cost = 20,878 + 2,297 + 1,044 = 24,219

bid at 18% markup = 28,578 → margin = 4,359 / 28,578 = 15.3%

for a 25% margin: markup 33.3% → bid = 32,292

The same job, quoted on habit versus quoted on a target, differs by roughly $3,700. That gap is the whole reason to separate the two words.

Assumptions and limits

One job, one labour rate. Different trades at different rates need a line-item price book.
Contingency here is a percentage, not a risk register. A job with a known unknown deserves a real allowance, not a blanket 5%.
Excludes retention, finance costs and payment terms — a profitable job can still fail on cashflow.
This is bid arithmetic, not a certified estimate or engineering approval.

Doing this more than once?

This prices one job from round numbers. These keep a reusable price book, and track the change orders that quietly move a job's margin after it is won.

Questions

Why is my margin lower than my markup?: Markup divides profit by cost; margin divides the same profit by the larger price. Markup is always the bigger number. An 18% markup is a 15.3% margin, and a 50% markup is a 33.3% margin.
What markup do I need for a 25% margin?: 33.3%. The conversion is markup = margin / (1 - margin), so as target margins rise the required markup rises much faster — a 50% margin needs a 100% markup.
Should overhead go in the cost or come out of the markup?: In the cost. If overhead is left to be covered by markup, then markup stops being profit and the margin figure describes nothing. Recover overhead as a cost and let markup be the profit it is supposed to be.

Last updated 22 August 2026.