Pricing and quoting, 29 October 2026
Markup vs margin in construction: the difference and what it costs you
Markup is profit divided by your cost. Margin is profit divided by the price the client pays. The same £1,000 of profit on a £4,000 cost is a 25% markup but only a 20% margin. If you want a 15% margin and add 15% to cost, you fall short on every job: about £529 on a £20,000 package.
What is the difference between markup and margin?
Both start with the same profit: price minus cost. Markup divides that profit by what the job cost you. Margin divides it by what you charge. Because the price is always bigger than the cost, the margin percentage is always smaller than the markup percentage on the same job.
Take a £4,000 bathroom refit, all costs in: labour, materials, plant and the share of overheads from your overheads per man-day. You charge £5,000 before VAT.
| Working | Result | |
|---|---|---|
| Profit | £5,000 − £4,000 | £1,000 |
| Markup | £1,000 ÷ £4,000 | 25% |
| Margin | £1,000 ÷ £5,000 | 20% |
Same job, same pound of profit, two different percentages. Neither is wrong. The trouble starts when you set a target in one and price in the other.
Which one should you use for pricing?
Set your target as a margin and price from it. Your accountant, your bank and any buyer of your business talk in margin, because it's the share of turnover you keep. Markup is handy for one thing: adding a fixed percentage to a supplier price on a single line, like materials.
The formula for pricing to a margin is: price = cost ÷ (1 − margin). For a 20% margin on £4,000, that's £4,000 ÷ 0.80 = £5,000.
Your numbers, not a promise. Change any figure to match your firm.
If you already think in markup, use the markup calculator below and read the margin it gives you. If the margin is lower than you thought, your prices are lower than you thought.
Your numbers, not a promise. Change any figure to match your firm.
What does mixing them up cost?
On every job, the difference between your target and what you made. It's small as a percentage and large over a year.
A 15% target margin priced as a 15% markup
A builder pricing a £20,000 extension package (labour, materials, subbies, overheads) wants a 15% margin.
| Price with 15% added to cost£20,000 × 1.15 | £23,000 |
| Profit made£23,000 − £20,000 | £3,000 |
| Margin achieved£3,000 ÷ £23,000 | 13.0% |
| Price for a true 15% margin£20,000 ÷ 0.85 | £23,529 |
| Profit at a true 15% margin£23,529 − £20,000 | £3,529 |
| Lost on this one job£3,529 − £3,000 | £529 |
| Lost over ten similar jobs a year£529.41 × 10 | £5,294 |
Say a roofing firm sets its target at 15%. On short jobs a 15% margin is already thin: one extra day on site can take all of it. Pricing that 15% as a markup on top of cost leaves even less room.
How do you convert markup to margin and back?
Use the two formulas, or the table. Margin = markup ÷ (1 + markup). Markup = margin ÷ (1 − margin). Work in decimals: 25% is 0.25.
| Markup on cost | Margin on price |
|---|---|
| 10% | 9.1% |
| 15% | 13.0% |
| 20% | 16.7% |
| 25% | 20.0% |
| 33.3% | 25.0% |
| 50% | 33.3% |
| 100% | 50.0% |
| Margin you want | Markup you need |
|---|---|
| 10% | 11.1% |
| 15% | 17.6% |
| 20% | 25.0% |
| 25% | 33.3% |
| 30% | 42.9% |
Two lines are worth learning by heart: a 25% markup is a 20% margin, and a 50% markup is a 33% margin.
Should you mark up materials and labour the same way?
You can mark up different parts of a job at different rates, as long as you check the margin on the whole job at the end. A sole trader we spoke to marks materials up 10%. On £1,000 of materials that's £100 of profit, a 9.1% margin on that line. Fine as part of a price. A problem if it's the only profit in the job and the labour is priced at cost.
- Cost every line.
Labour at the true cost of a productive day, materials at your merchant price after discount, subbies and plant at what they charge you, and overheads per man-day times days on site.
- Add markup where it fits.
Materials and subbie lines often carry a set percentage. Some firms add a handling percentage to cover ordering, collection and waste.
- Total the job.
Add up the sell prices of every line.
- Check the whole-job margin.
Total profit ÷ total price. If it's below your target, raise the labour rate or the markup, or look again at the cost.
- Keep the target in writing.
A number on a card in the van beats a number in your head at 10pm.
For more on what to add to supplier prices, see how to price a job, which covers the costs small contractors forget.
What margin should a small trade firm aim for?
There's no official figure. The right margin is the one that pays for overruns, call-backs and quiet months and still leaves profit. Build it from your own numbers: your overheads per man-day, your true labour cost, and how often jobs run over.
Two checks help. First, take last year's accounts and divide net profit by turnover: that's the margin you made, whatever you thought you were charging. Second, cost three finished jobs line by line and compare the margin on each to what you priced. If you don't track cost per job, job costing for trades shows how to start. If you price subcontract work by area, convert your day rate to a price per m² with the margin built in, and if you offer clients choices, check the margin on each option in quotes with options.
Where Nexley fits
Nexley is the AI back office for UK trade firms: five AI assistants run your tenders, quotes, buying, scheduling and invoicing. It connects to the tools you already work in, you run it all from WhatsApp, and you approve everything. £799 a month.
Nexley holds your target margin, labour rates and material markups in your price list, so a voice note from site becomes a priced quote built on cost ÷ (1 − margin), not a guess. You see the cost, the profit and the margin on each draft before you approve it and it goes to the client over WhatsApp or email.
Common questions
Is a 20% markup the same as a 20% margin?
No. A 20% markup gives a 16.7% margin. To make a 20% margin you need a 25% markup. On a £10,000 cost, that's the difference between charging £12,000 and £12,500.
Why is margin always lower than markup?
Because both use the same profit, but margin divides it by the price and markup divides it by the cost. The price is always the larger number, so the margin percentage is always the smaller one.
Do I work out margin before or after VAT?
Before. If you're VAT registered, the VAT you charge goes to HMRC, so it isn't part of your turnover or your profit. Price, cost and margin should all be net of VAT.
What's the quickest way to price to a margin on site?
Divide your cost by 1 minus the margin. For 15%, divide by 0.85. For 20%, divide by 0.8. For 25%, divide by 0.75. Put those three numbers in your phone notes.
Sources
Every rule, rate and date above was checked against these sources on the date shown at the top.
Topic: Pricing and quoting
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