The Precision Guide™ to Pricing vs. Markup
Pricing and markup are often confused, leading to underpriced work and disappointing profits. This guide explains the difference and how to use each correctly.
Markup Builds Price
Markup is added to your cost to arrive at a selling price.
Margin Measures Profit
Margin is the percentage of the selling price that remains as profit.
Confusing Them Costs Money
Using the wrong calculation often results in lower-than-expected profits.
Why This Matters
Many owners say they want a 30% profit but accidentally apply a 30% markup. Those are not the same calculation. Understanding the difference helps you price jobs accurately and hit your financial goals.
The Precision Framework™
Know Your Costs
Include labor, materials, overhead, and risk.
Select Target Margin
Decide the profit percentage needed.
Calculate Selling Price
Convert the target margin into the proper selling price.
Review Results
Compare estimated and actual profitability after the job.
Markup vs. Margin Example
30% Markup
If a job costs $100, a 30% markup creates a selling price of $130. The profit margin is only about 23%.
30% Margin
To achieve a true 30% margin on a $100 cost, the selling price must be approximately $143.
Common Mistakes
Guessing Prices
Using round numbers instead of calculations.
Ignoring Overhead
Markup on materials alone does not recover business costs.
Confusing Terms
Markup and margin are different financial tools.
Never Reviewing Jobs
Track actual profitability to improve future estimates.
Frequently Asked Questions
Which should I use?
Use markup to build prices and margin to evaluate profitability.
Can every job have the same markup?
No. Risk, competition, and complexity differ from project to project.
Should materials and labor use the same markup?
Not necessarily. Many businesses apply different strategies to each.
How often should I review pricing?
Whenever costs change and at least several times each year.