Markup uses cost. Margin uses the selling price.
Suppose an estimate has cost C and selling price P. The difference P − C is the amount above the selected cost base. Markup divides that amount by C. Margin divides it by P. Penn State Extension explains the difference between the two denominators. Applying those definitions to an estimate gives these pricing formulas:
- Price from markup = cost × (1 + markup).
- Price from target margin = cost ÷ (1 − target margin).
- Margin from a marked-up price = (price − cost) ÷ price.
Use a positive cost, a nonnegative markup, and a target margin from 0% up to, but below, 100% for this calculator.
Compare two bid prices
The starting values are illustrative. Replace them with your estimate inputs.
Worked example: 25% markup versus 25% margin
Assume a construction scope costs $8,000 USD on the cost basis you selected. The amount and both percentages are illustrative.
- 25% markup on cost: $8,000 × 1.25 = $10,000.00. The amount above cost is $2,000. Dividing by $10,000 gives a 20% margin.
- 25% target margin on price: $8,000 ÷ 0.75 = $10,666.67, rounded to cents. The amount above cost is $2,666.67, about 25% of that price.
The target-margin price is $666.67 higher in this example. For the target-margin route, the implied markup is about 33.33%.
Define the cost base before you price a bid
The FHWA cost-based estimating workflow separates labor, equipment, materials, and incidentals from overhead, profit, and bond. Decide which components your input already includes. When your cost input includes only direct costs, the difference between price and that input still has to cover any omitted costs. Record the treatment of overhead, bonds, and other charges in the estimate and count each cost once.
Calculate the bid on a consistent basis, then apply the rounding and presentation required for your proposal. Review how the total changes if quantities or costs move. For the labor component, see the construction labor cost per unit calculator.