Margin or markup in construction: how to set your price without getting it wrong

What is the difference between margin and markup?

Margin is profit expressed as a percentage of the selling price. Markup is that same profit expressed as a percentage of cost. For the same dollar profit, markup is always higher than margin, because you are dividing by a smaller number.

• Margin = (price − cost) ÷ price
• Markup = (price − cost) ÷ cost
• Price from a markup = cost × (1 + markup)
• Price from a margin = cost ÷ (1 − margin)

Hypothetical example: a job costs $10,000 and you sell it for $12,500. The profit is $2,500. Markup: 2,500 ÷ 10,000 = 25%. Margin: 2,500 ÷ 12,500 = 20%. Same job, same profit, two different percentages.

How do you calculate your selling price from a target margin?

Divide your cost by (1 − target margin). Hypothetical example: cost of $10,000, target margin of 25%. Price = 10,000 ÷ 0.75 = $13,333.33. The profit is $3,333.33, which is a 33.33% markup.

The trap: multiplying the cost by 1.25 thinking you will get a 25% margin. You get $12,500, so only a 20% margin. The gap is $833.33 for every $10,000 of costs, or $16,666.67 on a project with $200,000 in costs (hypothetical examples).

What is the conversion table between margin and markup?

These values are pure arithmetic: margin = markup ÷ (1 + markup), and markup = margin ÷ (1 − margin).

Reading the green row: a 25% markup gives a 20% margin, and a 25% margin requires a 33.33% markup.

How do you check the margin on a bid you have already prepared?

Subtract the cost from the price, then divide by the price. Hypothetical example: price of $18,500 before taxes, cost of $14,800. Profit: $3,700. Margin: 3,700 ÷ 18,500 = 20%. Markup: 3,700 ÷ 14,800 = 25%. If the margin is below your target, adjust the price before sending rather than after it is accepted. Do this check for every bid and every change order, while the price can still change.

How do you include overhead in your price?

In this article, direct costs are what the project consumes: materials, labour (including employer costs, not just the hourly rate), subcontractors and equipment rental. Overhead is the company's spending that is not tied to a single project: rent, administration, insurance, vehicles, software. If you don't build it into your prices, your profit pays for it. A cost tied to a single job site, such as supervising that site or renting temporary fencing, counts as a direct cost of that project.

Step 1. Estimate your annual overhead and your expected annual sales. Hypothetical example: $180,000 of overhead for $1,200,000 of sales, which is 15% of the selling price (180,000 ÷ 1,200,000).

Step 2. Add overhead and target profit, as percentages of the price, then divide direct costs by what is left. Hypothetical example: direct costs of $100,000, overhead of 12% of the price, profit of 8% of the price. Price = 100,000 ÷ (1 − 0.12 − 0.08) = $125,000. Check: $15,000 of overhead and $10,000 of profit, and 100,000 + 15,000 + 10,000 = $125,000.

The trap: $100,000 × 1.20 gives $120,000, where overhead and profit make up only 16.67% of the price, not 20%. If your actual sales come in below your expected sales, the overhead rate is underestimated: redo the calculation during the year.

For the true cost of labour, use the true cost of an employee calculator; for construction wage rates, see our 2026 CCQ guide.

What mistakes throw off a margin calculation?

• Confusing margin and markup. See the conversion table above.
• Calculating margin with taxes included. GST (5%) and QST (9.975%) are added to the selling price; they are not part of your profit. Calculate the margin on the price before taxes, then add the taxes with the GST/QST calculator.
• Giving a discount without recalculating. Hypothetical example: a price of $12,500 for a cost of $10,000 (20% margin). A 5% discount brings the price down to $11,875: profit drops from $2,500 to $1,875 (−25%) and the margin to 15.79%.
• Averaging the margins of each line. Hypothetical example: one line with $6,000 of cost at a 30% margin (price of $8,571.43) and one line with $4,000 at a 10% margin (price of $4,444.44). Total: $13,015.87 for $10,000 of costs, an overall margin of 23.17%, not 20%. It's the dollar amounts that carry the weight, not the percentages.
• Forgetting the cost of tied-up money. A contractual holdback keeps part of your payment until it is released: read our article on the 10% contractual holdback.
• Using outdated costs. A bid calculated with old material prices or old labour rates eats into the margin without you noticing.

What happens to the margin if costs run over the estimate?

On a fixed price, every dollar of overrun comes straight out of profit. Hypothetical example: price of $12,500, estimated cost of $10,000 (20% margin). If the actual cost reaches $11,000, which is 10% more than planned, profit falls to $1,500 and the margin to 12% (1,500 ÷ 12,500). In this example, a 10% cost overrun takes 8 points off the margin. That is why it pays to build a risk contingency into your price and to bill changes requested by the client as change orders.

What margin should you aim for?

There is no percentage that works for everyone: it all depends on your overhead, the risk of the job and your workload. This article does not quote any "industry average margin", for lack of an official source we could verify.

Start from your own numbers instead. If your direct costs are complete, your overhead rate (15% in the hypothetical example above) is the minimum margin to avoid losing money. Your target profit and a risk contingency are added on top.

How can you do this calculation faster?

The free bid margin calculator converts your costs and target margin into a selling price. In SubmitX, quotes can be prepared by AI, then you approve them before sending: every line stays editable, and GST and QST are recalculated automatically. You can also start from the free quote generator. The 7-day trial requires no credit card; there is a Free plan, a Starter plan and a Pro plan, pricing on request (see pricing).

Frequently asked questions

What is the difference between margin and markup?

Margin is profit divided by the selling price; markup is profit divided by cost. For a cost of $10,000 and a price of $12,500 (hypothetical example), the markup is 25% and the margin is 20%.

Is a 25% markup the same as a 25% margin?

No. A 25% markup corresponds to a 20% margin. A 25% margin corresponds to a 33.33% markup.

How do I calculate a selling price with a 20% margin?

Divide the cost by 0.80, which is the same as multiplying it by 1.25. Hypothetical example: $10,000 ÷ 0.80 = $12,500.

Is margin calculated before or after taxes?

Before taxes. GST (5%) and QST (9.975%) are added to the selling price and are not part of the profit.

Sources

• Revenu Québec, "Calculating the taxes" (in French): GST (5%) and QST (9.975%) rates, consulted on October 13, 2026.
• Formulas, conversions and examples: arithmetic calculations; all amounts in the examples are hypothetical.

Last checked: October 13, 2026. This article is general information; it is not accounting or tax advice.