Margin vs markup

Plenty of builders add 20% to cost and think they’ve priced a 20% margin. They’ve priced 16.7%, and over a year those missing points decide whether the business pays you.

What it is

Markup is profit as a share of cost. Margin is the same profit as a share of the price the customer pays.¹ The price is always bigger than the cost, so the margin percentage is always the smaller number.

A job that costs $800,000 needs a $1,000,000 price for a 20% margin. The $200,000 profit is 20% of the price but 25% of the cost, which makes it a 25% markup.²

Markup on cost	Margin you actually earn
10%	9.1%
15%	13.0%
20%	16.7%
25%	20.0%
33.3%	25.0%

Why it matters to a builder

Overheads and net profit come out of margin. Healthy building businesses aim for a 20% gross margin, which covers overheads of 8 to 12% and leaves about 10% net.² Price every job at a 20% markup and you’re more than three points short before anything goes wrong on site.

A New Zealand builder found his margin was about 8%, partly because his spreadsheet priced markup when he thought it priced margin. Changing the number in the spreadsheet was an easy fix. His margin is now about 12 to 13%, though he changed other things too.³ Another used to put a 10 to 15% markup on a guessed hourly allowance and judge profit by the bank balance. Now he works to a set profit target of 25% gross and 15% net.⁴

How it works in practice

Work from the margin back to the price:

Price equals cost divided by one minus your target margin. For a 20% margin, divide cost by 0.8.

In a spreadsheet that’s =cost/(1-margin). If your template has =cost*(1+margin), it’s working out markup. Check yours before the next quote goes out, then re-run your last three quotes at your target margin to see how far off they were.

Then make it stick:

• Keep your gross margin, overhead and net profit targets in view when you price.
• Put the table above next to whoever does the pricing.
• Say “margin” or “markup” every time you talk percentages with your accountant, bookkeeper or estimator.

Let software do the maths

Spreadsheets are where this mistake lives. One wrong formula gets copied into every quote, and nobody spots it until the year-end numbers come in. Construction management and estimating software takes that risk away. You set your target margin once, the system prices back from it, and you can see the margin on every estimate, variation and job while you work.

The better systems keep watching once the job starts. Purchase orders, actual costs and variations all land against the same job, so you can see the margin move while there’s still time to do something about it.

When you compare software, check that it:

• shows margin and markup separately and labels which is which
• lets you set a target margin and warns you when a quote or job drops below it
• updates the job margin as variations and actual costs come in

Already using software? Check whether it’s set to apply a markup or a margin. That setting matters as much as the spreadsheet formula did.

Common confusion

Cost plus fees are markups

A cost plus fee is added to cost, so it’s a markup. Cost plus 10% is still common, and one Queensland builder remembers feeling guilty the first time he charged 15%.⁵ A New South Wales builder on 10% cost plus was netting 2.3 to 2.4% a year. He lifted his rate to 19.5% over six months and his bottom line went to 10%.⁶ If you build cost plus, convert your fee to a margin and test it against your overheads. Check your state’s rules too: in Queensland, the QBCC defines cost plus contracts and treats them as higher risk for owners.⁷

Gross margin is not net profit

Gross margin is what’s left after job costs. Your office, vehicles, insurance and your own wage all come out of it before any net profit. A job can hit its gross margin while the business loses money, if overheads aren’t recovered.

The customer hears “margin” differently

Customers often think the whole margin is the builder’s take-home. One Sunshine Coast builder says he couldn’t explain margin and markup to customers until he’d worked through a few jobs himself.⁸ A Tasmanian builder now walks customers through his quote line by line: GST, overhead percentage, markup, and his gross and net targets.⁹ Know your own numbers and it’s easier to show customers that the margin pays for supervision, the office and the risk you carry on a fixed price.

Where to next

Margin is one of ten levers in Top 10 ways to improve your margin. For the costs that sit under the margin, read Estimating mistakes that eat your margin.

Footnotes

1. Business Queensland, “Measuring profitability”. https://www.business.qld.gov.au/running-business/finances-cash-flow/managing-money/monitoring-performance/measuring-profitability ↩

2. “Building Better Businesses”, The Good Builder (podcast), October 2025. https://www.youtube.com/watch?v=yj1SyXRYq9g ↩ ↩²

3. “The Margin vs Markup Fix”, The Professional Builder (podcast), 2026. https://www.youtube.com/@theprofessionalbuilder ↩

4. “How To Turn A Net Loss Into Multimillion Dollar Contracts”, The Professional Builder (podcast), 2026. ↩

5. “The Godfather of Building Shares 40 Years of Wisdom”, The Good Builder (podcast), June 2025. ↩

6. “If You Accept Ten Percent Margin You Will Go Broke”, The Professional Builder (podcast), 2026. ↩

7. Queensland Building and Construction Commission, “Contracts and agreement types”. https://qbcc.qld.gov.au/home-owner-hub/build-renovate/contracts-payments/contracts-agreement-types ↩

8. “Why Jumping Into Jobs Blindly Forces You To Suffer Abusive Clients”, The Professional Builder (podcast), 2026. ↩

9. “Building Business, Health and the Future of the Industry”, The Good Builder (podcast), February 2026. ↩