Markup vs. Margin, Overhead, and the Critical Path

The math and scheduling ideas that separate a contractor who makes money from one who goes broke. Markup vs. margin is the single most common estimating trap on the exam.

1. Markup vs. margin — not the same number

• Markup = profit as a percentage of COST.
• Margin (gross margin) = profit as a percentage of SELLING PRICE.

Because price is bigger than cost, the markup % is always larger than the margin % for the same dollar of profit.

Worked example: a job costs $1,000 and you add a 25% markup:

• Price = $1,000 × 1.25 = $1,250
• Profit = $250
• Markup = 250 / 1,000 = 25%
• Margin = 250 / 1,250 = 20%

Confusing the two is how contractors under-price: charging a "25% margin" when you meant a 25% markup leaves money on the table.

2. Overhead vs. direct cost

• Direct costs = costs tied to the specific job (that job's labor and materials).
• Overhead = indirect business costs (office rent, admin, insurance, tools, licensing) that must be spread across all jobs. Your bid must recover overhead and profit, not just direct cost.