Pricing & Margin
Markup is not the same as margin.
Most owners reverse the formula and quietly give away thousands every year.
The two formulas
Same numerator. Different denominator.
Markup = (price − cost) ÷ cost. Margin = (price − cost) ÷ price. A $1,000 cost sold for $1,500 is a 50% markup but only a 33% margin. That gap is where money disappears.
25%
markup
equals a 20% gross margin.
50%
markup
equals a 33% gross margin.
100%
markup
equals a 50% gross margin.
The trap
A “30% markup” is a 23% margin.
An owner marking up materials 30% thinks they have a 30% margin. They don’t. The actual margin is 23%. On $400k of annual revenue, that’s about $28k of gross profit they never accounted for and never planned around.
If you’re running a business off markup math, you’re running it on the wrong number.
The fix
Price to the margin you want.
- 01
Decide the target margin first
Pick the gross margin the job needs to hit. For most home services, 40% to 55% is the working range.
- 02
Use the margin formula, not markup
Price = cost ÷ (1 − margin). For a $1,000 cost at 40% margin: $1,000 ÷ 0.6 = $1,667.
- 03
Check the gap on every estimate
If the price − cost number doesn’t hit your target percent of price, the quote isn’t finished.
The bottom line
Markup feels safe. Margin pays the bills.
Reprice one job sheet this week using the margin formula. Watch what your number actually is.