Scribd
Upload
139 views2 pages

The Mistake of Markup

To achieve a 20% gross profit margin, a builder must mark up job costs by 25%. This is because a 25% markup on costs results in a 20% margin when calculated as profit divided by total price. The document provides a sample job costing $10,000, with a 25% markup of $2,500, for a total price of $12,500. With a markup of $2,500 and total price of $12,500, the margin is 20%, showing how much a contractor must markup costs to achieve a given margin. A table further illustrates the relationship between different markup percentages and resulting margins.

Uploaded by

danish_1985
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
139 views2 pages

The Mistake of Markup

To achieve a 20% gross profit margin, a builder must mark up job costs by 25%. This is because a 25% markup on costs results in a 20% margin when calculated as profit divided by total price. The document provides a sample job costing $10,000, with a 25% markup of $2,500, for a total price of $12,500. With a markup of $2,500 and total price of $12,500, the margin is 20%, showing how much a contractor must markup costs to achieve a given margin. A table further illustrates the relationship between different markup percentages and resulting margins.

Uploaded by

danish_1985
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

THE MISTAKE OF MARKUP

If a builder wants to make a 20% margin (also called gross profit) to cover overhead and
profit, he has to mark up his hard costs by 25%. This little twist of math manages to
confuse many people and has probably lead to the bankruptcy of more than a few small
contractors who thought they could mark up their jobs by 20% for a 20% gross profit. The
math, shown below is simple. To achieve a 20% margin (for overhead and profit), you need
to mark up your costs by 25% (see box below).
SAMPLE JOB MARKUP
Job Costs $10,000+ 25% markup: 2,500
Total price: 12,500
Markup Price = Margin: 2,500 12,500 =
20%
The chart below shows how much a contractor has to mark up his hard costs in order to
make a certain margin. Margin, or gross profit, is used to pay for a companys overhead and
to provide a net profit at the end of the year.

Markup

MARKUP VS. MARGIN


Margin (Gross Profit)

15%

13.0%

20%

16.7%

25%
30%

20.0%
23.0%

35

25.9%

40%

28.6%

50%
100%

33.0%
50.0%

Note: To achieve the margin in the second column, a contractor must


mark up its hard costs by the number in the first column.
The two concepts are telling different sides of the same story. In this light, the profit margin
is addressing the profit as it relates to selling price, whereas the markup addresses the
profit as it relates to cost price.
It measures how much out of every dollar of sales a company actually keeps in earnings.

Gross Profit Margin


A financial metric used to assess a firm's financial health by revealing the proportion of
money left over from revenues after accounting for the cost of goods sold. Gross profit
margin serves as the source for paying additional expenses and future savings.
Calculated as:

Where: COGS = Cost of Goods Sold


Also known as "gross margin."

You might also like