Markup vs margin for builders: how to put overheads and profit into a quote, and whether the client should see them

Markup is a percentage added to your cost; margin is profit as a share of the selling price. 25% markup on £100 makes £125, which is a 20% margin. Work out what your overheads cost a year as a share of your turnover, add the profit you want on top, and build both into your prices.

Markup and margin are not the same number

Markup is what you add to cost. £100 of materials with 25% markup sells for £125.

Margin is the profit as a share of the price the client pays. The £25 you made on that £125 is a 20% margin.

Same money, two different percentages, and quoting mixes them up all the time. The higher the percentage, the wider the gap:

• 10% markup is a 9.1% margin
• 15% markup is a 13.0% margin
• 20% markup is a 16.7% margin
• 25% markup is a 20.0% margin
• 30% markup is a 23.1% margin

It matters most when you have a target. Say a job costs you £40,000 and you want a 20% margin. Add 20% and you sell at £48,000, keeping £8,000: a 16.7% margin, £2,000 short of what you meant. To keep 20% of the price you need 25% on cost, which sells at £50,000 and keeps £10,000.

The two formulas, if you want them: margin = markup ÷ (1 + markup), and markup = margin ÷ (1 − margin). The construction quoting glossary has both terms with the same worked example.

Step one: know what your overheads cost

Overheads are the costs of being in business that are not tied to any one job: vehicles, insurance, phones, software, the office, the accountant, and your own time spent surveying, pricing and chasing. None of them appear as an item on a quote, so they have to be recovered from every quote through your markup.

Work it out once a year:

• Add up last year's overheads from your accounts
• Add up the direct cost of the work you did: materials, labour at what it actually cost you, subcontractors, plant and prelims
• Divide the first by the second

If overheads came to £30,000 on £300,000 of direct cost, every job needs 10% on cost just to pay for being open. That 10% is not profit. It is the rent.

Price labour at its real cost before you get this far. Our 12 quoting mistakes works through a tradesperson on £180 a day who costs £240 to £260 once NI, pension, holiday, the van, tools and unproductive time are in. Get that wrong and no markup will save the job.

Step two: add the profit on top

Profit is what is left once the overheads are paid: the money for the job that goes wrong, the quiet month, the next van, and you. It goes on top of overhead recovery, not instead of it.

So your markup is two parts added together: overheads plus profit. Ten percent overheads and ten percent profit is a 20% markup. As our quoting mistakes guide puts it, most small trade firms need 20% to 30% on top of direct cost to survive, and the ones who add 10% are busy and broke.

Prelims are not overheads

Skips, scaffold, welfare, protection, site supervision and cleaning belong to the job, so they are priced on the job as items, not hidden in a percentage. If a skip is in your prelims and also in the overhead figure you divided out above, you are charging for it twice, and the client who reads both will notice. Our preliminaries guide has the checklist.

Should the client see your markup?

There are two ways to present it, and both are honest as long as the numbers add up.

Built into the prices. The client sees material and labour prices that already include your overheads and profit. The quote reads cleanly, and nobody argues about your percentage, because there is no percentage to argue about. This is how most domestic quotes are presented.

Shown as lines. Overheads and a company fee appear as their own lines under the materials and labour. Commercial clients and cost-plus contracts often expect it. It shows your working, and it also invites a negotiation on the percentage, so explain plainly what the overheads cover.

Whichever you choose, three rules:

• The client's copy must add up. If the materials and labour on the quote don't sum to the subtotal, the client sees it before you do, and a hidden markup turns into a credibility problem.
• Take any discount off the total, before VAT, not out of an overheads line. A goodwill discount on the whole price is easy to understand. Cutting your overheads line tells the client it was padding.
• Be consistent across the PDF, the quote link and anything you send by WhatsApp. One version of the numbers, everywhere.

How EstiMate handles it

In EstiMate you set a markup on the job and split it into overheads and a company fee, and you can rename the fee. Both are built into the material and labour prices the client sees on the quote link, the PDF, WhatsApp and the exports, unless you tick to show either one as its own line. A discount comes off the whole price before VAT.

Your default markup and the share of it that is overheads sit in Settings, with a short paragraph explaining what your overheads cover. When overheads show as a line, that paragraph appears at the end of the quote. Business and Reports add up the overheads recovered and the company fee earned across the jobs you win, so you can see whether the percentages you set are being met. The rest of the quote, from materials and labour to the contract and invoices, is on the quoting software page.

A quick check before the quote goes

• Is labour priced at what it costs you, not the wage?
• Are prelims priced as items, and not also inside your overhead percentage?
• Does your markup cover overheads and profit, or only one of them?
• If you are aiming for a margin, have you converted it to a markup?
• Do the client's materials and labour add up to the subtotal on the copy they will see?

Five questions, two minutes, and the price you send is the price you meant.