# Contractor Markup: How to Set It and Price Jobs for Profit

Canonical URL: https://www.simplywise.com/blog/how-to-set-markup-price-jobs-for-profit/
Plain text: https://www.simplywise.com/blog/how-to-set-markup-price-jobs-for-profit/llms.txt
Publisher: SimplyWise, Inc. (https://www.simplywise.com)
Published: July 8, 2026
Updated: October 14, 2026
Category: Business & Growth
Summary: Contractor markup explained in plain math: markup vs margin, your overhead rate, and 6 steps to price every job for profit. Photo estimator free to try.

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## Contractor Markup: How to Set It and Price Jobs for Profit

Markup and margin are not the same number, and mixing them up costs real money. Here is the plain math behind contractor markup and the six steps to price every job for profit.

Contractor markup at a glance

1. Markup is figured on your cost. Margin is figured on your price. They are never the same number.
2. Add up a year of overhead and find your overhead rate. Your markup covers that before any profit.
3. A 25% markup gives a 20% margin. Want a true 20% margin? You need a 25% markup.
4. Test the new price on three bids, then review your numbers every quarter.

## The markup mistake that eats your profit

An electrician we know ran a busy crew for three years and billed over $600,000 a year. Every December his accountant gave him the same news: he barely broke even. The problem was not his work. It was his contractor markup. He added 30% to his costs and believed that meant 30% profit. It does not. A 30% markup works out to about a 23% margin. Run his year as a worked example: a 30% markup on $600,000 of revenue leaves about $138,500 of gross profit. A true 30% margin would be $180,000. He was more than $40,000 short of the number in his head, every single year.

Bad markup math also compounds every other pricing error on the job. If your estimates leak too, read the estimate mistakes contractors make (https://www.simplywise.com/blog/estimate-mistakes-contractors-how-to-fix/) and fix both ends at once.

## Markup vs margin: the two numbers that get mixed up

Markup is the percentage you add to your costs to reach the selling price. Cost $40,000, add a 25% markup: $40,000 x 1.25 = $50,000.

Margin is the share of the selling price that is profit. That same job earns $10,000 on a $50,000 price: $10,000 / $50,000 = 20%.

So a 25% markup produced a 20% margin. Every markup produces a smaller margin, and the gap grows as the numbers climb. This is the whole reason contractor markup trips people up. Two formulas convert between them:

- Markup to margin: margin = markup / (1 + markup). Example: 0.25 / 1.25 = 0.20, a 20% margin.
- Margin to markup: markup = margin / (1 minus margin). Example: 0.20 / 0.80 = 0.25, a 25% markup.

| Markup | Margin | On a $40,000 cost |
| --- | --- | --- |
| 10% | 9.1% | Price $44,000, profit $4,000 |
| 20% | 16.7% | Price $48,000, profit $8,000 |
| 25% | 20% | Price $50,000, profit $10,000 |
| 50% | 33.3% | Price $60,000, profit $20,000 |
| 100% | 50% | Price $80,000, profit $40,000 |

## How to set your contractor markup in 6 steps

Grab last year’s numbers and 30 minutes. The same steps work for any trade.

1. Add up a year of overhead Overhead is everything you pay to stay in business even when no job is running: the truck, insurance, phone, software, licenses, marketing, your accountant, and your own unbillable hours spent estimating and invoicing. Pull 12 months of it and total it. Not sure a cost counts? The IRS keeps a plain list of business expense categories (see Sources below).
2. Find your overhead rate Divide annual overhead by annual direct costs, the money that goes straight into jobs. Worked example: $108,000 of overhead against $450,000 of direct costs is $108,000 / $450,000 = 24%. Every job has to carry that 24% before you earn a dime of profit.
3. Pick a profit target and convert it to markup Many small contractors aim for 10 to 15% net profit after every cost is paid. Convert the margin you want into markup with the formula above. A 20% margin needs a 25% markup, because 0.20 / 0.80 = 0.25. A 15% target works out to about a 17.6% markup.
4. Price the job: overhead first, then profit Worked example on a bathroom remodel with $18,000 in direct costs. Overhead at 24% adds $4,320, so break even is $22,320. Add 15% profit on the break even number, $3,348, and the price is $25,668. That is $25,668 / $18,000 = 1.426, about a 43% total markup on direct costs. The price is only as good as that first cost number. The SimplyWise Cost Estimator turns a photo of the job into an itemized estimate in about 6 seconds, so the math starts from real costs. Estimate From a Photo
5. Test the price on your next three bids Send three bids at the new number and watch what happens. Win almost everything and you are priced too low. Many contractors treat winning about a third of their bids as healthy. Lose them all and the problem may be presentation, not math. Our guide to bidding construction jobs (https://www.simplywise.com/blog/how-to-bid-construction-job-guide/) covers how to present the number.
6. Review your numbers every quarter Overhead moves. Insurance renews higher, fuel jumps, and a slow quarter shrinks revenue while overhead stays put. Every 90 days, recompute your overhead rate and compare estimated versus actual costs on finished jobs. Then defend what you built with these 10 ways to protect your profit margin (https://www.simplywise.com/blog/10-ways-protect-profit-margin-contractors-2026/).

## Keep your contractor markup honest with SimplyWise

Markup only works when the cost numbers under it are real. SimplyWise captures every receipt, tracks your mileage, and turns a photo of the job into an itemized estimate in about 6 seconds. Your overhead rate and your job costs come from records instead of memory, and it is free to try.

Try the Cost Estimator Free

## Sources

- IRS, Guide to Business Expense Resources (https://www.irs.gov/forms-pubs/guide-to-business-expense-resources) (the plain reference for which costs count as business expenses when you build your overhead list). Checked July 8, 2026.
- U.S. Small Business Administration, Business Guide: Marketing and Sales (https://www.sba.gov/business-guide/manage-your-business/marketing-sales) (SBA guidance on writing a pricing strategy into your plan). Checked July 8, 2026.
- Every dollar figure on this page is a worked example for illustration, and every percentage range is practice guidance, not survey data.

> You cannot protect a margin you never calculated. Overhead first, profit second, then price with confidence.

SimplyWise Editorial

## Frequently asked questions about contractor markup

### Margins and markup

**What is a good profit margin for a contractor?**

Many small contractors aim for 10 to 15% net profit after every cost is paid, including overhead and your own salary. If you are consistently under 8%, your markup is probably not covering your true overhead.

**Is a 50% markup too high?**

Not on its own. A 50% markup works out to a 33.3% margin, which is common practice in remodeling and service trades. What matters is whether the price covers your overhead, pays you a fair profit, and still wins work in your market.

### Subs and clients

**Should I mark up subcontractor costs?**

Yes. You coordinate the schedule, manage the quality, and carry insurance for the whole project. Many general contractors add 10 to 20% to subcontractor quotes. Passing sub costs through with no markup means you manage that work for free.

**Should I show my markup to clients?**

Usually no. Present the price by line item, such as labor, materials, and scope, without printing your markup percentage. If a client wants open book, cost-plus pricing, that is a different contract, and the markup rate gets negotiated up front.

## Know your numbers. Keep your profit.

Snap a photo of the job and get an itemized estimate in about 6 seconds. Set a contractor markup that covers your overhead and pays you first. Free to try.

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## About SimplyWise

SimplyWise, Inc. (New York, NY) builds mobile apps for contractors, tradespeople, and small business owners. The SimplyWise Cost Estimator turns a job site photo into an itemized estimate with labor and material costs in about 6 seconds, and the client signs the branded quote to approve it. It is rated 4.8 on the App Store. It is free to try with a 7-day free trial, then $29.99 per month or $239.99 per year (about $20 per month on the annual plan), and one subscription includes every app in the SimplyWise suite.

- Download: https://www.simplywise.com/download
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- Every SimplyWise page as plain text: https://www.simplywise.com/blog/llms.txt