Articles · Pricing
Margin vs. Markup: The Pricing Mix-Up That Costs Electricians Money
If you mark up your cost by 25% and think you made a 25% margin, you priced the job low. Here is why, with real numbers.
5 min read · CircuitCount
The two words mean different things
Markup is profit compared to your cost. Margin is profit compared to the price the customer pays. Same dollars of profit, two different percentages.
Margin % = profit ÷ price
A panel-swap example
Say your cost on a job is $2,000: material, labor and overhead.
| You add | Price | Profit | Markup | Margin |
|---|---|---|---|---|
| 25% markup | $2,500 | $500 | 25% | 20% |
| 25% margin | $2,667 | $667 | 33.3% | 25% |
The difference is $167 on one job. Over 100 jobs a year that's $16,700 you thought you were making and weren't.
How to price for a target margin
Divide your cost by (1 minus the margin). Don't multiply.
$2,000 ÷ (1 − 0.25) = $2,667
Conversion table
| Margin you want | Markup you need |
|---|---|
| 10% | 11.1% |
| 15% | 17.6% |
| 20% | 25.0% |
| 25% | 33.3% |
| 30% | 42.9% |
| 35% | 53.8% |
| 40% | 66.7% |
Which one should you use?
Either works if you use it on purpose. Margin is easier to compare with your yearly numbers, because your profit-and-loss statement shows profit as a share of sales. Markup is easier to do in your head at the supply-house counter. The mistake is mixing them: setting a "25%" goal in one and pricing in the other.
Don't forget overhead
Margin should be profit after overhead. If your "cost" is only material and labor, a 25% margin may be eaten by the truck, insurance and office before you see a dime. Add overhead to cost first, then add margin. See how to work out your overhead rate.
Quick checklist
- Decide: margin or markup. Write it down.
- Put overhead into cost before you add profit.
- Check both percentages on every bid before it goes out.
Price your next job in minutes
CircuitCount does this math for you, offline. 10 free jobs.
This article is general business math for electrical contractors. It is not legal, tax, accounting or code advice. Use your own numbers.