Starfish Coaching · Free Calculator
Calculator · markup against margin · break-even revenue
Most construction owners can tell you their revenue to the dollar and have no idea what they keep. They are not careless. The three numbers that decide it are kept in three different places, and nobody ever puts them on one page. This page puts them on one page, and it takes about a minute.
Where the money actually goes
Nothing is sent anywhere. The arithmetic runs in your browser.
Markup is calculated on your cost. Margin is calculated on your price. They are never the same number, and the gap gets wider the higher you go.
| If you mark up | Your margin is | You keep on $100k |
|---|
To keep 25% you have to mark up 33.3%, not 25%.
| Sell more at today's margin. Extra revenue needed | n/a |
| Or hold revenue and lift net margin to | n/a |
| Or cut overhead by | n/a |
Three doors into the same room. The third is usually the fastest, and it is the one owners look at last.
Direct job costs are what a job consumes: materials, the labour on site, subtrades and equipment on that job. If the job disappeared, the cost would disappear with it.
Overhead is what the company costs whether or not a job is running: the office, the admin wages, the trucks, insurance, software, and your own salary. Owners routinely leave their own pay out of this, which makes the business look profitable when it is really paying them less than they would earn working for someone else.
Margin is what is left. Gross margin is revenue minus direct job costs. Net margin is what survives after overhead. Gross margin is the number contractors quote each other at the pub. Net margin is the number that decides whether the business is worth owning.
This is the most expensive piece of arithmetic in the trade, so it is worth being blunt about it. Markup is calculated on your cost. Margin is calculated on your price. They are never the same number.
Mark a $100,000 job up by 20% and you price it at $120,000. You keep $20,000 out of $120,000, which is a 16.7% margin and not a 20% one. You are a sixth short of where you thought you were, on every single job. The gap widens as you go up: a 50% markup is a 33.3% margin, and to actually keep 25% of a job you have to mark it up 33.3%.
| Your margin is | On a $100,000 job you keep | |
|---|---|---|
| Mark up 10% | 9.1% | $9,100 |
| Mark up 20% | 16.7% | $16,700 |
| Mark up 25% | 20.0% | $20,000 |
| Mark up 30% | 23.1% | $23,100 |
| Mark up 50% | 33.3% | $33,300 |
If you have been quoting on markup and budgeting on margin, that difference has been coming out of your own pocket for as long as you have been in business.
Every route to more profit is one of three moves.
The instinct, and the slowest. At a 6% net margin, an extra $100,000 of net profit means finding $1.67 million of additional revenue, with new crews, new risk and new overhead. It also makes a bad margin worse faster, because you are scaling the thing that is broken.
Better estimating, fewer change orders given away, less rework and tighter buying. It is slower to feel and permanent when it lands.
The one owners look at last and the one that moves fastest, because a dollar of overhead removed is a dollar of profit added at once, with no selling, no delivery and no risk.
The calculator above shows what each of those three costs at your own numbers.
Margin is an outcome, not a cause. Two companies with identical revenue and identical overhead can post completely different net margins, and the difference is almost never pricing. It is estimating accuracy, change order discipline, rework, and how much of the business runs through one person's head.
A margin problem is usually a process problem wearing a financial disguise, which is why fixing it by putting prices up tends not to work. The leak is somewhere else. Finding where is what the free scorecard and the Business Health Check are for, and if you want to see how this connects to growth, read how to grow a construction business.
Overhead is what the company costs whether or not a job is running: the office, admin wages, insurance, vehicles, software and the owner's own pay. Profit is what is left after both the direct job costs and the overhead have been paid.
No, and the difference is expensive. Markup is a percentage of your cost and margin is a percentage of your price. A 20% markup is a 16.7% margin. To keep 25% of a job you have to mark it up 33.3%.
Divide your annual overhead by your gross margin percentage. With $380,000 of overhead and a 25% gross margin, you have to turn over $1.52 million before the business makes anything.
Yes. If your pay is not in the overhead figure, the business is not as profitable as it looks, because it is being quietly subsidised by you working below the market rate.
It varies a great deal by trade, region and company size, so a single national average tells you little about your business. A more useful comparison is your own margin over time and against the plan you set. Put your numbers into the calculator above, and if the result surprises you, that is the most useful answer the page can give.
Gross margin is revenue minus direct job costs, divided by revenue. Net margin is what survives after overhead as well. Gross margin is the number contractors quote each other. Net margin is the one that decides whether the business is worth owning.
Score your business across the eight fundamentals in about five minutes. It is free, and it shows where the leak is more likely to be.
Eric Lee · Starfish Coaching · 1937 Triumph St, Vancouver BC V5T 1C5
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