Ask ten builders what margin they work on and most will say "I put 20% on". That's markup, not margin, and the difference is thousands of pounds a year.
The two sums
Markup is what you add to your costs.
Margin is what's left as a share of what the customer pays.
A job costs you £1,000. Add 20% markup and you charge £1,200. Your profit is £200, but as a share of the £1,200 you charged, that's 16.7%, not 20%.
To actually make a 20% margin you'd need to charge £1,250. The sum is:
price = cost ÷ (1 − margin)
£1,000 ÷ 0.80 = £1,250
What that costs you over a year
Say you turn over £200,000 of work a year and you think you're on 20%.
| What you think | What you get | |
|---|---|---|
| Method | 20% margin | 20% markup |
| Profit on £200,000 of costs | £50,000 | £40,000 |
Ten grand, for using the wrong sum. Nobody stole it. It was never charged.
The conversion table
Stick this in the van. Left column is the margin you want, right column is the markup you need to add to your costs.
| Margin you want | Markup to add |
|---|---|
| 10% | 11.1% |
| 15% | 17.6% |
| 20% | 25.0% |
| 25% | 33.3% |
| 30% | 42.9% |
| 40% | 66.7% |
Which one should you use?
Use markup when you're pricing, because you're starting from costs. Use margin when you're judging whether the job was any good, because that's the number that compares across jobs and matches how your accounts read.
The trap is quoting on markup and then reporting on margin without converting. You end up thinking you're doing better than you are.
What margin should a small builder be on?
There's no single right answer, but be wary of anything under 15% on general building work. By the time you've had one bad job, a client who pays at 60 days and a van repair, a thin margin is a loss.
What matters more than the target is knowing the real number. That means counting every cost against the job: labour at what it costs you, materials, plant, skips, fuel, the subbie who did two extra days. Not the ones you remembered at the end.
Three habits that protect the margin
- Price from costs, not from the last job. Materials move.
- Charge for variations before you do them. "Can you just..." is where margins go to die. Price it, get it agreed in writing, then build it.
- Check the job while it's live. Finding out at the end doesn't help. Finding out in week two lets you do something.