Markup vs Margin for Contractors: How to Price for Overhead and Profit
Ask ten contractors what they make on a job and most will tell you their markup. "I mark up 20%." But markup is not what you keep. A 20% markup is a 16.7% margin, and that margin still has to pay for your truck, your office, your insurance and your own salary before anything is left as profit. Mixing up the two is one of the most common reasons busy contractors end the year with less money than they expected.
This guide explains the difference in one minute, gives you a conversion table, shows what remodelers actually earned according to the National Association of Home Builders (NAHB), and walks through a worked $40,000 bathroom example that builds the price from overhead and target profit. To skip the math, use our free profit margin calculator.
Key takeaways
- Markup is a percentage of cost. Margin is a percentage of price. The same dollars give a bigger markup number than margin number.
- Convert with two formulas: margin = markup ÷ (1 + markup), and price = cost ÷ (1 − margin).
- NAHB's latest study found remodelers averaged a 29.9% gross margin and a 6.3% net margin in 2024, with operating expenses at 23.6% of revenue.
- Price from the margin you need, which is your overhead percentage plus your target net profit.
Markup vs. margin in one minute
Markup is how much you add on top of your cost, as a percentage of cost. Margin (gross margin) is how much of the selling price is left after direct costs, as a percentage of price.
ConstructionOnline puts it plainly: "a markup of 25% equates to a margin of 20%. Your company will gain a 20% profit on the item––not 25%" (source). The dollars are the same; the percentage is different because the base is different.
Conversion table: markup to margin
Use this table to see what your markup really means. The last two columns show what happens to $100 of cost.
And the other direction, which is the one you actually need when you price a job from a target margin:
Notice how fast the gap grows. A 100% markup (doubling your cost) is only a 50% margin. A contractor who needs a 30% margin and marks up 30% is short by almost seven points on every job.
What remodelers actually earn: NAHB 2024
NAHB's Remodelers' Cost of Doing Business Study (2026 edition, covering fiscal year 2024) is the best benchmark for residential remodelers. According to NAHB: "In 2024, the average net profit margin for remodelers was 6.3%, the highest since 1996," and remodelers had a "29.9% average gross profit margin in 2024." NAHB's Eye On Housing blog adds that operating expenses averaged "$646,000 (23.6% of revenue)," on average revenue of $2.7 million.
Read that carefully. The average remodeler kept about 30 cents of gross profit on every dollar, spent almost 24 cents of it on running the business, and was left with a bit over 6 cents. On the markup side, a 29.9% margin requires roughly a 42.7% markup on direct cost. A contractor marking up 20% or 25% across the board is nowhere near that.
Building your markup from overhead and target profit
The right markup is not a number you pick. It comes from two inputs:
- Overhead as a percentage of revenue. Add up last year's operating expenses (office, vehicles not charged to jobs, insurance, software, marketing, admin salaries, your own salary if it isn't job-costed) and divide by revenue.
- Target net profit. What you want left after everything. NAHB's 2024 average was 6.3%.
- Required margin = overhead % + target net profit %.
- Required markup = margin ÷ (1 − margin).
Worked example: a $40,000 bathroom
Say a remodeler's overhead runs 20% of revenue and they want a 10% net profit. Required margin is 30%. The direct cost of a bathroom remodel (labor, materials, subs, permits, dumpster) comes to $28,000. These figures are illustrative.
Now compare what happens if the same remodeler "marks up 30%" because they want 30%:
Same job, same costs, same intention. The difference is $2,880 of profit on one bathroom, and it compounds across every job in the year. Overhead is also often understated in this comparison, because it rises as you add jobs and staff.
How to calculate your overhead percentage
Everything above depends on knowing your overhead as a share of revenue. Most small contractors have never calculated it, or calculated it once years ago. Here is a simple way to do it from last year's books. The numbers are an illustrative example for a small remodeler, not a benchmark.
If that company did $1,100,000 in revenue, overhead is $224,000 ÷ $1,100,000 = 20.4% of revenue. Add a 10% net profit target and the required margin is about 30.4%, which means a blended markup of about 43.7% on direct cost.
Three checks keep this honest:
- Don't double count. If a cost is already charged to jobs (a site supervisor's hours, a dumpster), leave it out of overhead.
- Use next year's plan, not just last year's actuals. If you are hiring an estimator or adding a truck, overhead goes up before revenue does.
- Recheck revenue. If revenue falls and overhead stays flat, your overhead percentage rises, and so must your margin.
Labor vs. materials vs. subs: should markups differ?
Many contractors use different markups for different cost types. In a Q&A column in Construction Business Owner, the author suggests that "labor markup should be between 20 percent and 40 percent," with materials, equipment and subcontracts marked up at whatever the market will allow. The column's example blends those into one overall rate: $920,000 of markup on $10,000,000 of cost is "9.2 percent markup rate" (source).
Reasons contractors mark up labor more than materials:
- Labor carries the risk. Productivity, weather, callbacks and crew turnover hit labor, not materials.
- Labor has burden. Payroll taxes, workers' comp, insurance and paid time off sit on top of wages. Use our labor markup calculator to get a burdened rate before you add markup.
- Materials are easy to price-check. Homeowners can look up a vanity or tile price, so high material markups invite pushback.
- Subcontractors already include their own profit. Your markup on subs pays for coordination, scheduling and warranty risk.
Whatever split you use, check the blended result. If the blended markup across the whole job is below what your overhead and profit require, the split doesn't matter: the job is underpriced.
Pricing mistakes that kill margin
Inconsistent pricing is expensive in both directions. Esteban of SAA Construction Corp, who moved into residential remodeling from real estate, described what happened before he had a reliable system:
"I started losing so many jobs because I was crazy expensive. Or sometimes I was way too cheap." — Esteban, SAA Construction Corp
- Using markup and margin interchangeably. Price from margin.
- Not knowing your overhead percentage. Recalculate it at least once a year.
- Leaving out job costs. Permits, dumpsters, equipment rental, and project management time are direct costs. If they aren't in the cost, the markup doesn't cover them.
- Discounting off the price instead of the scope. A 10% discount on a 30% margin job removes a third of the gross profit.
- Never comparing estimate to actual. Without job costing, you don't know whether your margins are real.
- Underpricing to win. See our guide on how to avoid underpricing.
Offering options helps too. Good / better / best pricing lets the homeowner move the price by changing scope, not by asking you to cut your margin. For a trade-specific walkthrough, see how to price a kitchen remodel.
Use the calculators, then set markup once
Start with the profit margin calculator to convert between markup, margin and price, and the labor markup calculator to get a burdened labor rate. Then put the result into your estimating system so you don't redo it on every job.
In Eano Pro estimates, you set default markups and can adjust markup per line, so labor, materials and subs can carry different rates while you watch the job total and margin. Gordon A. Kullberg & Son described the effect of seeing line-item pricing and totals before a proposal goes out:
"You're not guessing anymore. You can see how the numbers are stacking up." — Gordon A. Kullberg & Son, Inc.
Bottom line
Markup and margin describe the same dollars from different bases, and the difference is big enough to decide whether a year is profitable. Work out your overhead as a percentage of revenue, add the net profit you want, and that is your required margin. Convert it to a markup with margin ÷ (1 − margin), and check every job's blended markup against it. NAHB's 2024 numbers (29.9% gross, 23.6% operating expenses, 6.3% net) are a useful benchmark for where remodelers actually land.
Set markup once and price every line in Eano Pro. Start a free trial
