How it works
Direct costs = labor hours × cost per hour + materials + other costs
Total cost = direct costs + overhead (a percentage of direct costs)
Price for your margin = total cost ÷ (1 − margin)
Margin at any price = (price − total cost) ÷ price
Margin is the share of the price you keep, so it is always lower than markup, which is the profit as a share of cost. A 25% margin is a 33% markup.
A worked example
A painter figures 10 hours of labor at $30, $400 in materials and $50 in other costs: direct costs of $750. Adding 15% overhead makes the total cost $862.50.
For a 25% margin the price is $862.50 ÷ 0.75 = $1,150, which leaves $287.50. The painter was going to quote $1,100: that keeps $237.50, a margin of 21.6%, $50 short of the target. If the customer then asks for 10% off $1,150, the price drops to $1,035 and the margin to 16.7%.
Prefer to work it out yourself? Step-by-step guide: do this calculation by hand or in a spreadsheet.
Common mistakes
- Leaving out overhead. Insurance, the truck and the phone are paid out of every job.
- Pricing from cost plus a flat percentage. Markup and margin are different numbers, and a 25% markup is only a 20% margin.
- Giving a discount without checking it. A 10% discount takes the whole 10% out of your profit.
What this doesn’t tell you
A planning tool for one job. It uses your own estimates of hours and costs, so a low estimate gives a price that is too low. It doesn't include sales tax, financing, warranty work or the cost of winning the job. Check the result against what customers in your market pay.
Related calculators
Go deeper: 15 Numbers Every Small Business Owner Should Know, from The Groundwork Review.
Anticipated Questions
What margin should I put on a job?
It depends on your overhead, how steady your work is and what customers will pay. Enter your costs above and see what each margin means in dollars, then compare it with your profit margin on past jobs.
What is the difference between margin and markup?
Margin is profit as a share of the price. Markup is profit as a share of your cost. A job costing $100 sold for $125 has a 20% margin and a 25% markup.
How do I know my overhead percentage?
Add a year of business costs that are not tied to one job (insurance, vehicle, phone, software, accounting, marketing) and divide by a year of job costs. Our What Should I Charge calculator turns those costs into an hourly rate.
Should I give discounts?
Check the margin first. This calculator shows what a discount does to your margin. If it cuts profit too far, offer a smaller scope or a payment-timing incentive instead.
Opening or moving? See your odds with a Market Feasibility Study or Site Selection Analysis.
Sources
Last reviewed October 19, 2026. How our calculators work. General information for planning, not legal, tax or financial advice. Found an error? Email info@groundworkbusinessadvisory.com.
