Markup is the percentage you add on top of your cost. Margin is the percentage of profit in your sell price. They are not the same number, and confusing them is one of the most common, most expensive mistakes tradies and builders make. A 20% markup is only a 16.7% margin. A 30% markup is only a 23.1% margin. If you’ve been adding 30% to your cost and thinking you’re making 30% margin, you’re missing roughly 7% of your revenue. On a $500,000 year, that’s about $35,000 you didn’t realise you were leaving on the table. The good news is the fix takes about ten minutes once you understand what’s actually going on.
Key Takeaways
- Markup is added on top of cost. Margin is the profit as a percentage of the sell price. Different formulas, different numbers.
- Margin is always lower than markup. Always. A 20% markup is a 16.7% margin. A 50% markup is a 33.3% margin.
- Most tradies who think they’re running 30% margins are actually running 23%. That gap is where profit goes to die.
- Net profit target for a healthy trades business is around 10%, on top of a market-rate wage for the owner. Gross margin needs to be 30 to 40% in most trades to support that.
- Fix the pricing template in your job management system this week. Don’t leave the gap there for another quarter.
The Mistake in One Paragraph
Most tradies and builders use markup and margin interchangeably. They’re not the same thing. A 20% markup gives you a 16.7% margin. A 50% markup gives you a 33.3% margin. If you’ve been adding 30% to your cost and assuming you’re hitting 30% margin, you’re running about 23%. That gap, multiplied across every job you do for a year, is real money. It’s also exactly the kind of hidden hole that turns a busy business into a broke one. If you don’t know your margins, you’re driving with a blindfold on.
What Markup Actually Is
Markup is the percentage you add to your cost to get the sell price. It’s the easy one. If something costs you $100 and you add 20% on top, you’re selling it for $120.
Markup % = (Sell price − Cost) ÷ Cost × 100
So $100 cost, $120 sell, $20 added on top. The $20 divided by the $100 cost gives you 20%. That’s your markup.
Markup is the lens you use when you’re building a quote: you start with cost and add a percentage. That’s why job management systems like simPRO, AroFlo, ServiceM8 and Fergus tend to ask you for a markup figure when you set up your pricing rules.
What Gross Margin Actually Is
Gross margin is the percentage of your sell price that’s profit. Same job, same dollars, different denominator.
Gross margin % = (Sell price − Cost) ÷ Sell price × 100
Same example: $100 cost, $120 sell. The $20 profit divided by the $120 sell price gives you 16.7%. So a 20% markup produced a 16.7% margin.
Gross margin is the lens your accountant and your P&L use. They’re looking at the sell price you charged the customer, and they want to know what percentage of that you kept. That’s why your accountant’s end of year numbers can come back lower than the markup you thought you were making. The numbers aren’t lying. They’re just measured a different way.
Markup to Gross Margin Conversion Table
Stick this on the wall in the office. Every time you’re about to send a quote, look at it. The left column is what you add on top. The right column is what you actually keep.
| Markup (added on top of cost) | Gross margin (% of sell price) |
|---|---|
| 10% | 9.1% |
| 15% | 13.0% |
| 20% | 16.7% |
| 25% | 20.0% |
| 30% | 23.1% |
| 33.3% | 25.0% |
| 40% | 28.6% |
| 50% | 33.3% |
| 67% | 40.1% |
| 100% | 50% |
Quick reading guide. If your accountant or P&L is showing you 25% gross margin, you’re marking up at 33.3%, not 25%. If your P&L is showing you 33% gross margin, you’re marking up at 50%. The bigger your markup, the wider the gap between the two numbers.
Why This Bleeds You on Every Job
Here’s the maths in actual dollars, because that’s how it lands.
Builder running $500,000 a year. They’re marking up at 30%, and they think that means they’re making 30% margin. So in their head, they’re making $150,000 gross profit a year before overheads.
Reality. 30% markup is a 23.1% margin. So they’re actually making about $115,000 gross profit. That’s a $35,000 gap they didn’t know was there. Not a one-off. Every year.
Take a real story. Eddie runs a waterproofing business. Two to three million in turnover, decent team. Work dried up from his commercial customers, he was losing money, his profitability was a mess. We dug into the numbers. Gross margin looked alright at 30 per cent. Job management system was showing jobs as reasonably profitable. But the P&L said otherwise. Where was the fucking money going?
Two things. The cost of labour in his job management system was wrong. Once we fixed that, the jobs weren’t showing as profitable any more. Then his utilisation was low, with too much travel time between smaller jobs and not enough charged time on each one. So his quoting allowances and his charge out rates were both off. He put his prices up by 30 to 40 per cent with almost no pushback, doubled down on sales, and last month did $170,000 with a $50,000 net profit in the month.
Eddie’s story isn’t exactly a markup versus margin confusion, but it’s the same disease. Numbers in the system that don’t match the numbers in the bank account. Once you fix the maths, the money shows up.
What Margin Should a Trade Business Be Making?
Rules of thumb. They’re not gospel, but they’re a useful starting point.
- Net profit target: around 10%, on top of a proper market-rate wage for you as the owner. Not instead of it. On top of it.
- Gross margin: 30 to 40% in most trades. Higher for some specialty work, lower for very materials-heavy work where most of your sell price is just the cost of stuff.
- To hit a 30% gross margin, you need to mark up your cost by about 43%. To hit 40% gross margin, mark up by about 67%.
- If you’re labour-heavy (no major materials), your margin should be higher because you’ve got fewer pass-through costs. If you’re materials-heavy, it’ll be lower.
For a deeper dive on this, see how to fix bad margins and better margins.
How to Fix Your Pricing This Week
Three things, in order.
1. Check the formula in your quoting template
Open your job management system. Look at the pricing rule. Is it asking you for a markup percentage or a margin percentage? They’re different inputs. simPRO, AroFlo, ServiceM8 and Fergus all handle this slightly differently. Whichever one you use, make sure you actually understand which figure goes in which box. If you’re telling the system 30% markup but you’re thinking 30% margin, the system is doing exactly what you asked. It’s just not what you wanted.
2. Reverse the maths on last month’s jobs
Pull last month’s P&L or your job costing report. Take the gross margin number it gave you. Use the table above to back-calculate what markup that actually was. Compare it to the markup you thought you were running. If there’s a gap, that’s your hidden hole.
3. Set a minimum gross margin rule
Pick the gross margin you need to hit (30%, 35%, 40%) and refuse to send a quote below it. Set it as a rule in the system if you can. If a job won’t price up to your minimum margin, the answer isn’t to drop your margin. The answer is to walk away or quote properly and let the customer choose.
More on the broader pricing approach: how to price your jobs and how much should you pay and charge.
Where Can I See What Coaching with Small Fish Looks Like?
Margins are one number out of about five that actually run a trades business. If you want to see how we help builders and tradies tighten the rest:
If you want to talk it through, book a money call. Ten minutes, no pressure.
FAQs: Markup, Margin and Pricing for Tradies
What’s a good gross margin for a tradie business?
30 to 40% in most trades. Higher in labour-heavy work where you’re selling time and skill more than materials. Lower in materials-heavy work where most of your sell price is the cost of stuff you’re passing through. The number that matters more than the percentage is whether your gross margin covers your overheads and leaves around 10% net profit on top of a proper wage for you.
Does my job management system calculate markup or margin?
Depends on the system, and sometimes depends on which screen you’re looking at. simPRO, AroFlo, ServiceM8 and Fergus all let you set pricing rules, but the field labelled “markup” and the field labelled “margin” are not the same input. Open the help documentation, find the page on pricing setup, and check exactly which figure your system wants. Then check it matches the figure you think you’re running.
Why is my gross margin low even though I added 30% markup?
Because 30% markup only gives you 23.1% margin. Maths, not magic. If your gross margin is sitting around 23% on the P&L and you’re marking up at 30%, that’s working as designed. The fix is to mark up higher. To hit 30% gross margin, you need to mark up your cost by about 43%.
About the Author
Jon Dale is the founder of Small Fish Business Coaching. He coaches tradies and builders to build profitable, sustainable businesses with clear numbers, solid systems and straight talking accountability. The goal is simple: more money, more time, less chaos. And no more pricing your jobs with a blindfold on.