Estimating guide
Markup and margin: what is the difference?
Markup and margin are both a percentage of profit. They are measured against different things, so the same job gives two different numbers. Mixing them up is how people end up with less profit than they meant.
The two definitions
- Markup is your profit as a percentage of what the job costs you. Cost 1,000, add 10%, and the price is 1,100. Your markup is 10%.
- Margin is your profit as a percentage of the price. The same job: profit 100, price 1,100, so the margin is 9.09%.
Same job, same money, two numbers. Markup is always the bigger one.
The mistake
You want a 20% margin, so you add 20% to your costs. That is a 20% markup, which is a 16.67% margin. To get a 20% margin you need to add 25%. The table has the pairs.
Markup to margin, and back
| If you add this markup | You earn this margin | To earn this margin | Add this markup |
|---|---|---|---|
| 5% | 4.76% | 10% | 11.11% |
| 10% | 9.09% | 15% | 17.65% |
| 15% | 13.04% | 20% | 25.00% |
| 20% | 16.67% | 25% | 33.33% |
| 25% | 20.00% | 30% | 42.86% |
The sums: margin = markup / (100 + markup). Markup = margin / (100 - margin). Both in percent.
How a tender is built up in the spreadsheet
The spreadsheets add things in a fixed order, so every step is on the page and nothing is hidden:
- Direct cost. Your own work (labour, materials, plant), the subcontractors and the site running costs.
- Contingency, as a percentage of the direct cost, for what you cannot yet see.
- Your profit line, as a percentage of the direct cost plus contingency. This is a markup.
- Bond and insurance, each as a percentage of the subtotal so far, not of each other.
- The total, which is the price you submit. Tax is shown apart and is not part of it.
A worked example
The electrical example for this country. Made-up job, realistic figures. Not a recommendation of any percentage. The job: electrical installation for a two-storey office fit-out, Leeds, West Yorkshire.
| Item | Amount |
|---|---|
| Direct cost | £124,755.43 |
| Contingency, 3% | £3,742.66 |
| Overheads and profit, 10% of the two above | £12,849.81 |
| Subtotal | £141,347.90 |
| Bond, 1% | £1,413.48 |
| Insurance, 0.5% | £706.74 |
| Tender total | £143,468.12 |
The overheads and profit line is a 10% markup on the cost it sits on. As a share of the final tender total it is 8.96%, because the contingency, bond and insurance are in the total too.
Country notes
The sheet calls the profit line “overheads and profit” and the running costs “preliminaries”. VAT is shown apart from the tender total, at the rate you type.
What I am not telling you
How much profit to add. That depends on what your business costs to run and what your customers will pay. The spreadsheet takes whatever percentage you type and shows what it does to the total.
When your spreadsheet gets heavy
If you end up with lots of tenders, changing rates or more than one person working on them, Bidfident does the same sums on a page and keeps every tender with its saved versions.
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