Markup v Margin
- Tim Goode
- Jul 1
- 2 min read
Many businesses quote jobs using a markup percentage, believing it equals their profit margin. But what if I told you this common misconception could be costing your business $45,000 annually?
Let's take a look:
Here’s a breakdown of the real impact:
Imagine you're quoting a one-week job with the following costs:
Labour: $2,500
Direct costs (e.g., subcontractors, equipment): $1,500
Materials: $4,000
Total costs: $8,000
You apply a 30% markup to the job, quoting a price of $10,400. Based on this, you estimate a gross profit of $2,400. Sounds like 30% profit, right? But in reality, your gross profit margin is only 23%; you’ve already lost 7% because of markup versus margin confusion.
Let’s go deeper:
Every job has overhead; in this case, it is $1,250. After covering overheads, your actual profit shrinks to $1,150 for the week.
Now, instead of using markup, what if you quoted with a 30% gross profit margin?
Under a margin-based calculation, your quoted price would increase to $11,429. This ensures your true gross profit margin is 30%. After overheads, your profit rises to $2,179 per job, nearly doubling your take-home profit.
The Cost of Misunderstanding Markup vs. Margin
In this example, the difference between the two approaches is $1,029 per job. Over the course of a year, assuming weekly jobs, this could cost your business $45,000 annually. That’s $45,000 you could be putting back into your business, or straight into your bank account!
Don’t Let This Common Mistake Hold You Back
If you're unsure whether your quoting process is maximising your profitability, let’s connect. I’m happy to answer your questions and help you avoid leaving money on the table.
Reach out today, and let’s ensure every job works harder for your bottom line!
Click here to book a time that works for you, or feel free to call me at 0439 030 850.
Tim Goode
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