Two contractors quote the same job and both say they are making twenty-five percent. One of them is making twenty. The difference is not opinion — it is which number the percentage is measured against.
Updated August 2026
The short version
Markup is profit measured against cost. Margin is profit measured against price. A job costing $80,000 sold with a 25% markup is priced at $100,000 — and that same job carries a 20% gross profit margin. Same money, two numbers.
The worked example
Calculation
Result
Job cost
$80,000
Markup on cost: $80,000 × 1.25
$100,000 selling price
Margin: ($100,000 − $80,000) ÷ $100,000
20%
Now run it the other way, because this is where the money leaks. If you actually want a 25% margin on that $80,000 job, the price is $106,667, not $100,000. A contractor who marks up 25% believing it delivers a 25% margin is under-pricing every job by that gap, all year.
Markup is always the larger percentage, because cost is always the smaller base. Whenever the two numbers seem interchangeable, ask what sits underneath the division line.
Direct cost or overhead?
Before either percentage means anything, the costs have to be sorted correctly.
Cost
Classification
Job-site labor and materials for a specific project
Direct (job) cost — traceable to that job
Office rent, office salaries, general insurance
Overhead (indirect) — supports the business, does not vary with a specific job
Outside accountants and attorneys for general business support
Overhead — professional/outsourced services
The point of a job-cost accounting system is to accumulate labor, material, equipment and subcontract costs by project, so actual costs can be compared against the estimate and profitability tracked job by job rather than guessed at year-end.
Labor burden: the number that ruins estimates
A worker's wage is not what the worker costs. Labor burden is the base wage plus the employer's payroll taxes, insurance and benefits:
FICA — 6.2% Social Security on wages up to the annual wage base, plus 1.45% Medicare with no wage cap, each paid by the employer as well as the employee
FUTA — 6.0% on the first $7,000 of each employee's annual wages, reduced by a credit of up to 5.4% for state unemployment tax paid on time, leaving a net 0.6%
Florida reemployment tax (SUTA) — employer-paid only, never withheld from wages
Workers' compensation and general liability tied to payroll
Benefits
Estimate off the bare wage and every job is underpriced before it starts.
Break-even and working capital
Break-even is the level of sales at which total revenue equals total costs — fixed and variable together, with neither profit nor loss. It tells you how much volume the overhead alone requires.
Working capital is current assets minus current liabilities: the short-term liquidity available to fund operations, and the figure a surety examines first when underwriting a bond.
Two more numbers worth knowing
2/10, net 30 — a 2% discount if the invoice is paid within 10 days, otherwise the full amount is due in 30. Taking it consistently is one of the cheapest returns available to a contractor with cash.
FIFO — first-in, first-out assumes the oldest materials are used first, leaving the most recent purchases in ending inventory.
Tax rates, wage bases and thresholds change annually. The figures here reflect the material as tested and are for exam study, not tax advice — confirm current rates with the IRS and the Florida Department of Revenue, and take advice from your accountant.
Why this is a third of the exam
Conducting Accounting Functions is 32% of the Florida Contractors Business & Finance exam — the single largest content area — and Managing Administrative Duties adds another 26%. Between them, well over half the exam is arithmetic and classification of exactly this kind.
It is also the most forgiving material to study, because the answers are computed rather than remembered. The exam is open book, 120 questions in 6.5 hours, 70% to pass — and no reference book will do a markup-versus-margin calculation for you.
Half the exam is arithmetic you can practice
FLBizFinPrep drills all 6 DBPR content areas with 120 exam-style questions and a worked, plain-English explanation on every answer.
What is the difference between markup vs margin in construction?
Markup measures profit against cost; margin measures profit against price. A job costing $80,000 sold at a 25% markup is priced at $100,000, which is a 20% gross profit margin.
Markup vs margin construction pricing — what changes in practice?
Markup vs margin construction pricing changes the price you quote. Markup vs margin explained in one line: markup divides profit by cost, margin divides it by price, so the same 25% produces two different numbers.
What is margin vs markup on the same job?
What is margin vs markup comes down to the denominator. On a $80,000 job sold for $100,000, margin is 20% and markup is 25% — identical profit, different base.
How do you do a break even analysis calculation for a contractor?
A break even analysis calculation finds the sales level where total revenue equals total costs, fixed and variable together, producing neither profit nor loss. It shows how much volume the overhead alone requires.
Why does working capital for a construction company matter?
Working capital for construction company purposes is current assets minus current liabilities — the short-term liquidity available to fund operations, and one of the first figures a surety reviews when bonding you.
How do you explain margin vs markup simply?
Same profit, different denominator. Markup divides profit by cost, margin divides profit by the selling price — so markup is always the larger percentage.
What is the margin vs markup calculation?
Markup = profit ÷ cost. Margin = profit ÷ price. On a job costing $80,000 sold for $100,000: markup is $20,000 ÷ $80,000 = 25%, margin is $20,000 ÷ $100,000 = 20%.
Markup vs margin — which is better to price by?
Price by the one that matches your target. If you want a 25% margin on an $80,000 job, the price is $106,667, not the $100,000 a 25% markup produces. Contractors who confuse the two under-price every job.
How to figure margin vs markup on a job?
Take the profit, then divide once by cost and once by price. The first gives markup, the second gives margin. They will never be equal.
What is labor burden in construction?
The base wage plus the employer's payroll taxes (FICA, FUTA, state reemployment tax), workers' compensation, payroll-based general liability and benefits — the full cost of employing someone, not just their pay rate.
What is a direct cost versus overhead?
A direct cost is traceable to a specific project, such as that job's labor, materials and equipment. Overhead supports the business generally — office rent, office salaries, insurance — and does not vary with any one job.
What is the break-even point for a contractor?
The level of sales at which total revenue exactly equals total costs, fixed and variable, producing neither profit nor loss.
What does working capital mean for a construction company?
Current assets minus current liabilities — the short-term liquidity available to fund operations, and one of the first figures a surety reviews when bonding a contractor.
What does 2/10 net 30 mean?
A 2% discount if the invoice is paid within 10 days; otherwise the full amount is due within 30 days.
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