Margins, Markups and Profits... Oh My!


Are you a Design Build Remodeling Business, Handyman Service, General Contracting, or Specialty Trade company, you need to ensure profitability.  Your company must ensure that profitability is baked into every project and every estimate.

Successful businesses use both margins and markups in their pricing to ensure profitability. The choice between using margins or markups in pricing can depend on specific business practices and standards within the remodeling industry.  Understanding how to calculate either margins or markups is crucial for achieving financial success in the construction industry.

The first step, before margins or markups is to know your total job costs.   

"If you don't know your costs, you are going out of business.... you just don't know it yet!"     - Business Mentor 1999  

Accurate job costs are the result of an up to date cost book and a comprehensive estimating process.  Construction and Remodeling Estimating Software system help you manage cost books and automate the estimating process.   Software tools like Remodel Cloud will bake the profit margin into the estimate while giving the user the ability to control margins for specific jobs across labor, material , and other job costs.

Markup and margin represent different aspects of a business's financial performance. Here's a brief explanation of each:

  1. Markup:

    • Definition: Markup is the percentage difference between the cost of goods or services and their selling price. It is essentially the profit percentage added to the cost to determine the selling price.
    • Formula: Markup Percentage = ((Selling Price - Cost Price) / Cost Price) * 100
    • Example: If a product costs $50 to produce, and it is sold for $75, the markup percentage would be ((75 - 50) / 50) * 100 = 50%.

  2. Margin:

    • Definition: Margin, on the other hand, is the percentage difference between the selling price and the profit. It represents the portion of the selling price that is profit.
    • Formula: Profit Margin Percentage = ((Selling Price - Cost Price) / Selling Price) * 100
    • Example: Using the same example, if a product is sold for $75 and it cost $50 to produce, the profit margin would be ((75 - 50) / 75) * 100 = 33.33%.

In summary, markup is calculated based on the cost of goods, while margin is calculated based on the selling price. Both metrics are important for businesses to understand their pricing strategies and profitability.


Remodel Cloud's Margin Management helps
manage your financial needs ensuring your jobs are profitable and notifying you when your profit is in jeopardy.   Learn more by contacting Remodel Cloud for demo to see exactly how Remodel Cloud's Margin and Project Management help ensure you are profitable.

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