Markup

The formula

Markup compares what you add to what the item cost you:

• Markup % = (Price minus Cost) ÷ Cost × 100
• Price = Cost × (1 + Markup %)

Example: A water heater costs you $800 from the supply house. You sell it for $1,200. You added $400, and $400 ÷ $800 = 0.50, so your markup is 50%.

Why contractors use it

Markup is the natural way to think when you start from a supplier invoice. You know what a part, a fixture or a pallet of shingles cost, and you need a quick rule for what to charge. Many shops set a standard markup for materials and a separate one for equipment, then price labor on its own.

Markup is not margin

The most expensive mistake with markup is treating it as the same number as margin. Gross margin is profit as a share of the price, not the cost, so the same job always shows a smaller margin percentage than markup percentage.

If you need a 30% margin to cover overhead and profit and you add a 30% markup instead, you end up at about 23% margin. The full explanation, with the conversion formulas, is in markup vs margin.

Example: A job costs you $7,000. Pricing for a 30% margin gives $7,000 ÷ 0.70 = $10,000. A 30% markup gives $7,000 × 1.30 = $9,100, which is $900 less for the same work.

What markup has to cover

The money you add on top of cost is not all profit. It has to pay for the trip to the supply house, the time spent ordering and returning parts, warranty risk if the part fails, shrinkage and the share of your overhead that the job should carry. That's why a markup that looks generous on a single part can still leave a job underwater once everything is counted.

Using markup well

• Set markup targets from the margin you need, not the other way around.
• Use tiered markup: a higher percentage on small, cheap parts and a lower one on expensive equipment, so big-ticket prices stay competitive.
• Review actual results with job costing. If jobs finish below your target margin, your markup or your labor estimate is off.