How to Price a Job: Markup vs Margin, Hourly Rates & the Profit You Keep

Markup is a percentage of your cost. Margin is a percentage of your selling price. They are never the same number unless both are zero, and the gap grows as the numbers grow: a 25% markup gives you a 20% margin, a 50% markup gives you 33%, and a 100% markup gives you 50%. If you price with one and think in the other, you will underprice jobs without noticing, and the money you thought you were keeping goes to overhead.

This page shows the math with real numbers, then builds a price from a target profit, and ends with a worksheet you can copy.

The two formulas

Take a job that costs you $5,000 and that you bill at $5,500.

• Profit = $5,500 minus $5,000 = $500.
• Markup = $500 / $5,000 = 10%.
• Margin = $500 / $5,500 = 9.09%.

Same job, same $500, two different percentages. The only thing that changed was the number you divided by.

The conversions are short:

• Margin = markup / (1 + markup)
• Markup = margin / (1 minus margin)
• Price = cost / (1 minus margin)

Housecall Pro’s guide and Projul’s guide both give these same formulas.

Markup to margin table

This table comes from Projul’s construction guide. Keep it near your estimating desk.

Markup on cost	Margin on price
10%	9.1%
20%	16.7%
25%	20.0%
30%	23.1%
40%	28.6%
50%	33.3%
75%	42.9%
100%	50.0%

Read it from the left. If you tell yourself “I mark everything up 30%,” you are keeping 23.1 cents of every dollar you bill, and the other 76.9 cents is your cost.

A worked example at $30,000

Projul works one through with a $30,000 cost:

• 50% markup: $30,000 × 1.50 = $45,000 price, which is a 33.3% margin.
• 50% margin: $30,000 / 0.50 = $60,000 price, which takes a 100% markup.

So “I want to make 50%” can mean a $45,000 bid or a $60,000 bid. That is a $15,000 difference on one job, from one word.

Overhead comes out before you see any profit

The part most new contractors miss is that margin is not take-home pay. Margin on the job (gross margin) has to pay for overhead first: insurance, truck, tools, phone, software, the office, your own time doing estimates and phone calls, and warranty callbacks.

Published numbers on overhead vary:

• Housecall Pro puts overhead at 10% to 20% of revenue, depending on the size of the business.
• Projul’s worked examples use 21.1% and 22%.
• Projul also says warranty work can be 2% to 5% of revenue and should be built into overhead or markup.

Housecall Pro gives a general benchmark of about 20% project margin for residential builders and remodelers, and says a 30% gross margin can shrink to about 8% net after overhead and taxes.

Your own books are the best source. Add up a full year of non-job costs, divide by a full year of revenue, and use that.

The same two contractors, side by side

Projul compares two contractors with the same target. Both want a 32% margin, 22% overhead and 10% net profit, on $2,000,000 of revenue.

Contractor A converts correctly:

• Markup needed: 0.32 / 0.68 = 47.1%.
• Direct costs: $1,360,000.
• Gross profit: $640,000 (32%).
• Overhead at 22%: $440,000.
• Net profit: $200,000 (10%).

Contractor B adds 32% to cost:

• Price: $1,360,000 × 1.32 = $1,795,200.
• Gross profit: $435,200 (24.2%).
• Overhead at 22%: $394,944.
• Net profit: $40,256 (2.2%).

Contractor B did nothing obviously wrong. The invoices looked fine. Over a year the gap was $159,744.

Build a price from a target, step by step

Here is a small residential job with made-up but typical line items. The shape of the math is what matters.

Direct cost line	Amount
Materials	$8,200
Your crew’s labor (paid wages and burden)	$6,400
Subcontractor	$2,400
Total direct cost	$17,000

Say your overhead runs 22% of revenue and you want 10% net. Then:

• Required gross margin = 22% + 10% = 32%.
• Price = $17,000 / (1 minus 0.32) = $17,000 / 0.68 = $25,000.
• Overhead at 22% of $25,000 = $5,500.
• Net profit = $25,000 minus $17,000 minus $5,500 = $2,500, which is 10% of $25,000.

Now the mistake. You add 32% to cost:

• Price = $17,000 × 1.32 = $22,440.
• Overhead at 22% of $22,440 = $4,937.
• Net profit = $22,440 minus $17,000 minus $4,937 = $503, which is 2.2% of the price.

Same job, same work, $2,497 less in your pocket. That is the markup trap in one table.

Hourly rate and day rate

If you bill by the hour, work backward. These numbers are an illustration, not market rates, so replace them with your own.

1. Pick your wage target for yourself. Say $35 an hour, paid.
2. Add burden: payroll taxes, workers’ comp, and benefits. Use your insurer’s quote.
3. Add overhead per billable hour. If annual overhead is $60,000 and you can bill 1,500 hours a year, that is $60,000 / 1,500 = $40 an hour.
4. Add profit. Take your target margin and divide: rate = cost per hour / (1 minus margin).

Suppose wage plus burden comes to $45 an hour and overhead is $40, so your cost is $85 an hour. At a 20% margin the rate is $85 / 0.80 = $106.25 an hour. A day rate for an 8-hour day is 8 × $106.25 = $850.

The key number is billable hours. Nobody bills 2,080 hours a year. Travel, quoting, shopping for materials, weather and callbacks eat the rest, so 1,500 is a plausible starting guess, and your timesheets will tell you the real one.

Pricing risk and change orders

Some jobs carry more risk than others: old houses with unknown framing, tight schedules, or customers who change their minds. Price that in explicitly, not by hoping.

Housecall Pro notes that contractors often take a higher margin on change orders, 30% to 50%, against 15% to 25% on the base contract. A change order interrupts the schedule and cannot be bid against anyone else, so that logic holds up.

Also keep warranty in the plan. If warranty callbacks run 2% to 5% of revenue, as Projul describes, that cost is real even though no customer ever sees it on a bill.

Check your direct costs first

The best markup math in the world fails if the direct cost is wrong. Start from a solid material and labor number before you add anything.

• For framing jobs, the Framing Cost Calculator gives a ballpark for lumber and labor.
• For additions, the Home Addition Cost Calculator shows how a cost range per square foot breaks down.
• For flatwork, the Concrete Slab Cost Calculator gives material and placement numbers to compare to your own quote.

These are for checking your numbers, not replacing a take-off from the plans.

Pricing worksheet

Copy this and fill it in for each job.

Step	Your number
A. Materials
B. Labor (wages plus burden)
C. Subcontractors and rentals
D. Total direct cost (A + B + C)
E. Overhead % of revenue (from last year’s books)
F. Target net profit %
G. Required margin (E + F)
H. Price (D / (1 minus G))
I. Markup equivalent ((H minus D) / D)

If H sounds too high for your market, the answer is to look at E and D. Cut overhead, find cheaper materials, or work faster. Shrinking F is the one that quietly puts you out of business.

What to do next

Look at your last three estimates and find the markup you used. Convert it with the table above. If the result is below the margin you thought you had, raise your next bid and see whether you still win work. Many contractors find they are cheaper than they thought, and still busy at a higher price.

Sources

• Construction markup vs margin guide. Projul
• Profit margin calculator and guide. Housecall Pro