Creating OnCost™ Estimates
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      Markup vs. Margin

      Understand the difference between markup & margin for more accurate estimates with ConstructionOnline's advanced construction estimating software

      In the high-stakes construction industry, construction professionals must be able to accurately price jobs to maximize profits and cover costs. During job pricing, two commonly confused accounting terms are markup & margin. While markup & margin both take in the exact same information, they yield completely different results. A simple misunderstanding between the two can cause significant damage to your company's financials. To ensure your jobs are always priced for profit, make sure your entire team understands the difference between markup and margin. 

      Markup vs. Margin

      Markup measures the difference between the cost of an item and the price of an item. In other words, markup represents how much the cost of an item is raised to match the selling price of the item. Markup is commonly indicated by a fixed amount or as a percentage of the cost of an item. For example, let's say the cost of an item is $100. Your company wants to sell the item for the price of $125. To calculate the markup as a percentage of cost, use the formula below:

      This results in a markup percentage of 25%, meaning the original cost of the item was marked up 25%. If we calculate 25% of 100, we get $25; this value is added to the original cost, resulting in the selling price of $125.  

      On the other hand, margin is the profit generated for an item after accounting for the cost of an item. Using the same numbers from the example above, we can calculate margin as a percentage using the formula below:

      This results in a margin percentage of 20%; in other words, your company is making a 20% profit on the item. Notice how we used the exact same numbers, yet the percentage for margin is considerably less than the markup percentage. It's easy to understand why markup and margin can be confused during job pricing. A common misunderstanding is that these terms are interchangeable, with many construction professionals assuming that a certain percent markup will result in the same percentage for margin. As seen in the examples above, a markup of 25% equates to a margin of 20%. Your company will gain a 20% profit on the item––not 25%. 

      Using Markup & Margin in ConstructionOnline™

      When it's time to calculate markup and margin, ConstructionOnline™ will do all the heavy lifting for you! However, it is still up to you and your team to decide when and where markup or margin should be applied within your financials. Let's look at the different scenarios in which markup or margin can be applied in ConstructionOnline. 

      First, markup can be applied to individual Estimate Line Items. This type of markup is also known as a Line Item markup. Markup applied to an individual Estimate Line Item can be a fixed amount, a percentage of the base cost, or a fixed amount per unit. Estimate Line Items can even use Classification markups, which automatically apply a customized markup to Items that have been assigned a Classification. More information about applying markup to individual Estimate Line Items can be found in Set Markup for an Estimate Item. Markup can also be applied to individual Change Orders or Selections. Keep in mind that while these individual markup calculations will help achieve overall profit, they will not guarantee a certain profit percentage at the end of the job. 

      So, how do you ensure that 20% of your project total will be allocated to profit? By using the Company Overhead and Margin section of your estimate! Each OnCost™ Estimate provides a detailed breakdown of Company Overhead and Margin that can be used to calculated overhead costs and profit margin for every job entered in ConstructionOnline. Company Overhead and Margin allows you to calculate markup or margin using numbers from the entire project—a more convenient way to factor in profit for the entire job. 

      Each component of Company Overhead and Margin can be calculated using one of three methods. To apply a certain percent markup to the Estimate subtotal, the Percent of Costs method can be used. This method calculates each component as a percentage of the Estimate, which is then added back to your Project Totals. However, since this is a markup calculation, your profit margin will never be the exact percent entered. To arrive at a true margin on your Estimate, use the Percent Margin method to calculate components of Company Overhead and Margin. Percent Margin allows you to look ahead to the final price you are going to charge the client, which ensures that the price is always going to have the exact percentage allocated for profit margin. Components of Company Overhead and Margin can also be set as individual flat rates using the Fixed Amount markup method. 

      More information about the Company Overhead and Margin section of your Estimate can be found in Understanding Company Overhead and Margin. 

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      • Frequently asked questions (FAQ) regarding OnCost Estimating can be found in the FAQ: Estimating article. 
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