Margin vs. markup for trade businesses

Markup and gross margin use different denominators. Mixing them up can produce a lower price than you intended.

Work through one example

Suppose the direct cost of a job is $1,000. A 50% markup adds $500, producing a $1,500 selling price. Gross profit is $500, so gross margin is $500 ÷ $1,500, or 33.3%.

To price for a 50% gross margin, divide direct cost by one minus the margin: $1,000 ÷ (1 − 0.50) = $2,000. Gross profit is then $1,000, or half the selling price.

Choose costs consistently

Include owner labor at a realistic cost, hired labor, materials, equipment and any job-specific travel or subcontractor costs. Gross profit still needs to cover overhead and taxes. A gross-margin target is not a promise of take-home profit.

Use your actual inputs

Different trades, scopes and regions have different costs. Start from your own costs and compare the result with the scope and customer expectations. The free Six Pines painting estimator uses measurements and preset service pricing to produce a preliminary painting or finishing estimate. It does not calculate a contractor’s labor costs or target gross margin. Cost-based quoting tools are included in the paid toolkits.

Try the free painting estimator, or compare paid cost-based toolkits.