Estimating & Bidding for Profit (Markup vs. Margin)
# Estimating & Bidding for Profit (Markup vs. Margin)
The fastest way to go broke while staying busy is **mispricing your work**. The classic mistake: confusing **markup** and **margin**.
## The two definitions
- **Markup** = added to your *cost*. Markup % = (Price − Cost) ÷ **Cost**.
- **Margin** = a share of your *price*. Margin % = (Price − Cost) ÷ **Price**.
They are NOT the same number.
## The trap
Add "20% markup" to a $100,000 cost → price $120,000. But your **margin** is only 20,000 ÷ 120,000 = **16.7%**, not 20%. Many contractors think they made 20% and actually made less.
## The formula that fixes it
To hit a target **margin**, use: **Markup % = Margin ÷ (1 − Margin).**
- Want 20% margin? Mark up **25%**.
- Want 25% margin? Mark up **33%**.
## Don't forget overhead
Your price must cover **direct job cost + a fair share of company overhead + profit.** If your markup only covers direct cost and profit, you're paying for overhead out of profit — "making money on the job, losing money in the business."
**Takeaway:** Price for the **margin** you need, and make sure overhead is in the number.
> *Educational content — not legal, financial, or accounting advice. Run your numbers with your CPA.*
