Guides

Markup vs margin for tradies (and why 20% markup isn't 20% profit)

If you add 20% to your costs, you have not made a 20% margin. You've made 16.7%. That gap is where a lot of trade businesses lose money without noticing.

The two numbers

• Markup is profit as a percentage of cost: markup = (price − cost) ÷ cost
• Margin is profit as a percentage of price: margin = (price − cost) ÷ price

Same job, same dollars, different percentages.

Worked example

Materials and labour cost you $1,000. You add 25% markup:

• Price = $1,000 × 1.25 = $1,250
• Profit = $250
• Markup = 250 ÷ 1,000 = 25%
• Margin = 250 ÷ 1,250 = 20%

Conversion table

To hit a target margin, use: markup = margin ÷ (1 − margin). For a 25% margin you need a 33.3% markup.

Why it matters

Your overheads — ute, insurance, phone, accounting, the hours spent quoting — get paid out of margin, not markup. If you think you're making 20% but you're really making 16.7%, every job is a little short, and it adds up over a year.

Don't forget overheads

Gross profit on a job isn't take-home. A simple habit: allocate overhead as a percentage of the job price (many small trade businesses land somewhere around 10–15%, but work out your own) and check what's left.

The SiteSheets quote template does this for you: every quote shows cost, overhead allocation, gross profit, margin and markup side by side, and warns you when margin drops under 20%.