Margin vs. markup for trade businesses
Markup and gross margin use different denominators. Mixing them up can produce a lower price than you intended.
Work through one example
Suppose the direct cost of a job is $1,000. A 50% markup adds $500, producing a $1,500 selling price. Gross profit is $500, so gross margin is $500 ÷ $1,500, or 33.3%.
To price for a 50% gross margin, divide direct cost by one minus the margin: $1,000 ÷ (1 − 0.50) = $2,000. Gross profit is then $1,000, or half the selling price.
Choose costs consistently
Include owner labor at a realistic cost, hired labor, materials, equipment and any job-specific travel or subcontractor costs. Gross profit still needs to cover overhead and taxes. A gross-margin target is not a promise of take-home profit.
Use your actual inputs
Different trades, scopes and regions have different costs. Start from your own costs and compare the result with the scope and customer expectations. The Six Pines free estimator calculates cost-based pricing from your inputs; it does not supply local market rates.