Question 1

What markup should a contractor charge?

Accepted Answer

Most profitable contractors apply a markup between 35% and 65% above direct costs, depending on the trade and region. This covers overhead expenses like insurance, vehicle costs, office rent, and tools plus a net profit margin of 15-22%. The exact number depends on your local labor burden rates, overhead structure, and competitive position. A roofing contractor in Phoenix with 18% overhead and 20% profit target needs a 41.6% effective markup on direct costs to maintain solvency. The exact markup for your trade and local labor market shifts that number significantly — a 3% error costs you on every job you price. Run your specific inputs above.

Question 2

What is the difference between markup and profit margin?

Accepted Answer

Markup is calculated on your cost base: if a job costs $10,000 and you charge $14,000, your markup is 40%. Profit margin is calculated on the selling price: that same $4,000 profit on a $14,000 sale is a 28.6% margin. Contractors who confuse the two consistently underprice by 8-15%. A 20% profit margin requires a 25% markup. A 30% margin requires a 42.9% markup. The gap widens as percentages increase, which is why getting the formula right matters more on larger jobs. These national conversion rates are the starting point. Your city's labor burden and overhead structure adjust the breakeven in ways that generic percentage charts don't capture. Markup % = Profit ÷ Cost × 100
Margin % = Profit ÷ Revenue × 100
25% markup = 20% margin (not 25%) Markup Applied Selling Price on $10K Actual Margin 25% $12,500 20.0% 33% $13,300 24.8% 40% $14,000 28.6% 42.9% $14,290 30.0% 50% $15,000 33.3%

Question 3

How do I calculate labor burden?

Accepted Answer

Labor burden includes all employer-paid costs beyond the hourly wage: FICA taxes (7.65%), federal and state unemployment insurance (FUTA/SUTA), workers compensation premiums, health insurance contributions, paid time off accrual, and any retirement matching. For construction trades, burden typically ranges from 26% to 35% of the base hourly wage. A worker earning $28/hr with 32% burden actually costs $36.96/hr. Omitting labor burden from bids is the single most common pricing error in contracting. On a $10,000 job, a missing 32% burden factor is $1,064 you never recover. On a $100,000 job it's $10,640. The calculator above applies your actual burden rate. Effective Hourly Rate = Base Wage × (1 + Burden%)
Example: $28.00 × 1.32 = $36.96/hr

Question 4

What overhead percentage should contractors use?

Accepted Answer

Overhead for trade contractors typically falls between 12% and 22% of direct costs, varying by trade and business size. Painting contractors with minimal equipment often run 12-14%. HVAC and electrical contractors carrying inventory, specialized vehicles, and licensing fees typically need 15-18%. General contractors managing multiple crews and office staff can reach 18-22%. Calculate yours by totaling all non-job costs for the year and dividing by total direct costs. The exact overhead percentage for your operation depends on your specific insurance, vehicle, and administrative costs — and a 2% error compounds on every bid you submit. Run your actual numbers above. Overhead Rate = Annual Overhead ÷ Annual Revenue × 100
Example: $80,000 ÷ $400,000 = 20% Trade Low Typical High Roofing 14% 18% 24% Plumbing 10% 14% 20% Electrical 13% 16% 22% HVAC 12% 15% 21% General Contractor 13% 15% 22%

Question 5

Why are most contractors underbidding?

Accepted Answer

The Construction Financial Management Association reports that the average contractor net profit margin is just 1.4%. Most contractors price jobs using gut feel, competitor matching, or simple multipliers that ignore overhead and labor burden entirely. One electrical contractor completed $1.8M in annual projects and took home $45,000 in profit. The math was technically correct per his estimates but he never accounted for his actual $312,000 in annual overhead. Underbidding is not a marketing strategy. It is an accounting failure that compounds on every job. These national patterns are the starting point. Your metro area's competitive density and labor supply adjust the margin pressure in ways that industry averages don't reflect.

Question 6

How much should roofing contractors markup materials?

Accepted Answer

Roofing materials markup should be included in your total project markup, not applied separately. When you calculate direct costs (materials plus fully burdened labor), then apply overhead and profit percentages, materials are automatically marked up proportionally. For a typical roofing job with $10,993 in materials and $4,435 in burdened labor, an 18% overhead and 20% profit margin produces an effective markup of 41.6% on total direct costs. Applying a separate materials markup on top of this methodology leads to double-counting. On a $15,000 materials job, the difference between correct and incorrect markup methodology is $2,100 in margin. On a $50,000 job it's $7,000. The calculator above shows your exact number.

Question 7

What is a fair markup for HVAC?

Accepted Answer

HVAC contractors require higher markups than many trades due to expensive equipment inventory, specialized licensing, ongoing certification costs, and seasonal demand fluctuation. A well-run HVAC operation targets 15% overhead and 21% net profit, producing an effective markup of approximately 39.2% on direct costs. During peak cooling season in southern markets, some contractors push profit margins to 25% or higher. The key is knowing your actual overhead number rather than guessing, because HVAC overhead varies significantly between residential and commercial operations. The exact HVAC markup for your market depends on your equipment inventory costs and seasonal demand pattern — a 4% overhead error costs you on every service call and installation. Run your specific numbers above.

Question 8

How does location affect markup rates?

Accepted Answer

Location affects markup through three mechanisms: labor rates, cost of living, and competitive density. A roofer in San Jose, CA pays $35.20/hr base wages versus $24.60/hr in Birmingham, AL — a 43% difference. But overhead percentages stay relatively stable because business costs scale proportionally. The real location impact is on the total dollar amount of your markup: the same 20% profit margin produces $3,005 on a Phoenix roofing job but $4,200 on an identical scope in Chicago. BLS metropolitan area wage data provides the most reliable local baseline. These regional averages are the starting point. Your city's specific BLS wage data and cost of living index adjust the baseline in ways that national calculators miss entirely. Region Avg Hourly Range vs National West Coast $28–$43/hr +15–45% Northeast $27–$37/hr +5–25% Midwest $27–$37/hr At average South Central $23–$33/hr -5–15% Southeast $21–$31/hr -10–20%

Question 9

What is the average profit margin for general contractors?

Accepted Answer

The national average net profit margin for general contractors is 1.4-3.5%, according to CFMA benchmark data. However, top-performing GCs consistently achieve 12-18% net margins. The difference is pricing methodology, not volume. General contractors face unique overhead pressure from project management staff, bonding costs, and multi-crew coordination. A GC with 15% overhead and 18% profit target needs a 35.7% effective markup on direct costs. Most GCs who report thin margins are absorbing overhead costs into direct project costs rather than accounting for them separately. On a $50,000 project, the difference between 3.5% and 18% net margin is $7,250 in profit. On a $200,000 project it's $29,000. The calculator above uses your actual cost structure.

Question 10

How do I calculate markup for a subcontractor?

Accepted Answer

When subcontracting work, treat the sub invoice as a direct cost equivalent to materials. Add your overhead percentage to the sub cost, then apply your profit margin. If a plumbing sub bills $8,000 and your overhead is 14%, your overhead allocation is $1,120. Apply your 22% profit target to the $9,120 total cost for $2,006 profit, bringing the client price to $11,126. Some GCs apply a flat 10-15% to sub costs, but this shortcut undercharges on overhead-heavy projects and overcharges on simple pass-throughs. Calculate it correctly every time. The exact sub markup for your overhead structure matters — a 3% error on an $8,000 sub invoice is $240, but across 40 subs per year that's $9,600 in lost margin. Run your numbers above.

You Didn't Build This Business by Guessing.

The Contractor Markup Calculator with BLS Regional Labor Rates.

What This Looks Like in Practice

Job Details

Three Signs Your Business Is Losing Money on Every Bid

Sign 1: Your Burden Rate Is Costing You 7-8% Per Labor Dollar

Sign 2: Your 20% Markup Is Producing 16.7% Margin — Not 20%

Sign 3: You're Funding Your Business Out of Your Profit

WITHOUT CORRECT MARKUP

WITH CORRECT MARKUP

BLS Regional Labor Data

Trade-Specific Defaults

Price Every Job With Your Actual Numbers

Common Questions

Markup Applied	Selling Price on $10K	Actual Margin
25%	$12,500	20.0%
33%	$13,300	24.8%
40%	$14,000	28.6%
42.9%	$14,290	30.0%
50%	$15,000	33.3%

Trade	Low	Typical	High
Roofing	14%	18%	24%
Plumbing	10%	14%	20%
Electrical	13%	16%	22%
HVAC	12%	15%	21%
General Contractor	13%	15%	22%

Region	Avg Hourly Range	vs National
West Coast	$28–$43/hr	+15–45%
Northeast	$27–$37/hr	+5–25%
Midwest	$27–$37/hr	At average
South Central	$23–$33/hr	-5–15%
Southeast	$21–$31/hr	-10–20%