Markup

What is Markup?

Markup is the percentage added to your actual costs (materials, labor, overhead) to determine the final selling price. It ensures your business covers expenses and generates profit.

Markup is essential for business sustainability and growth, covering overhead expenses and providing profit margin.

Markup vs. Margin

Markup

Percentage added to cost to get selling price.

• Cost: $100, Markup: 50% = Selling Price: $150

Margin

Percentage of selling price that is profit.

• Selling Price: $150, Cost: $100 = Margin: 33%

Common Markup Percentages

Materials: 15-50% depending on project size and complexity.

Labor: 20-35% to cover overhead and profit.

Subcontractors: 10-20% for management and coordination.

Small Jobs: Higher markup (40-60%) due to overhead allocation.

Large Jobs: Lower markup (20-30%) due to economies of scale.

Factors Affecting Markup

Project Complexity

More complex work justifies higher markup due to increased risk and management time.

Market Conditions

High demand periods allow for higher markup; competitive markets require lower markup.

Customer Relationship

Repeat customers may accept higher markup for trusted service.

Payment Terms

Cash jobs or quick payment may warrant lower markup than extended payment terms.

Calculating Markup

Formula

Selling Price = Cost × (1 + Markup Percentage)

Example

• Material Cost: $500
• Labor Cost: $800
• Total Cost: $1,300
• Desired Markup: 40%
• Selling Price: $1,300 × 1.40 = $1,820

Best Practices

Be Consistent: Apply markup systematically across all cost categories.

Know Your Numbers: Track actual costs to ensure markup covers all expenses.

Adjust for Risk: Higher risk projects should carry higher markup.

Don't Underprice: Insufficient markup leads to business failure.

Communicate Value: Help clients understand what markup covers - insurance, warranties, expertise, and business sustainability.