Contractor profit margin vs markup: why 25% isn't 25%
Qidda team4 min read
"I put 25% on everything." Many contractors say it, then find the year's profit is far lower. The usual cause is mixing up two numbers: markup on cost and margin on price, plus overheads that never made it into the price. Try your own numbers in the contractor profit margin calculator.
Markup and margin
- Markup = (price − cost) ÷ cost
- Margin = (price − cost) ÷ price
Cost EGP 100,000, add 25%, price EGP 125,000, profit EGP 25,000. Markup is 25%; margin is 25,000 ÷ 125,000 = 20%.
Conversions: margin = markup ÷ (1 + markup); markup = margin ÷ (1 − margin); price for a target margin = cost ÷ (1 − margin).
| Markup on cost | Margin on price |
|---|---|
| 10% | 9.1% |
| 15% | 13.0% |
| 20% | 16.7% |
| 25% | 20.0% |
| 33.3% | 25.0% |
| 50% | 33.3% |
Gross vs net
Project gross profit = project revenue − direct costs (materials, labour, subcontractors, site costs). Company net profit = the sum of project gross profits − overheads (office, fixed salaries, transport, marketing, taxes). A job with a 20% gross margin can leave far less net. When you read a "typical contractor margin", ask whether it is gross or net, per job or per company. For example, Buildern (June 2026, citing the US CFMA) puts average pre-tax net profit for builders at 1.4–2.4% while many apply 10–30% markup: a US market, quoted only to show the gap between job markup and year-end net.
Lump sum vs cost plus
On a lump-sum job your profit is the agreed price minus actual cost, so overruns hit you directly. On a cost-plus (fee percentage) job your profit is the fee × project cost, so any cost that is never recorded, including materials the client buys directly, drops out of your fee base.
Where fit-out profit leaks
- Small extras done without a price.
- Client-bought materials missing from the fee base (Qidda records them as "paid by the client" and counts them in the fee base: client-paid materials).
- Engineer petty cash with no receipts.
- Waste above plan on tiles, marble and drywall.
- Late client payments that make you fund the job.
Set your rate in four steps
- Total a year of overheads and divide by turnover. 2. Choose the net margin you want. 3. Convert it to a markup and apply it to full cost per item. 4. After each job, compare actual profit with plan.
Qidda shows each project's contract value, client payments and every expense (including client-paid ones), so you see real profit while the job runs. First project free, then a one-time payment per project. Try the calculator · Pricing
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FAQ
What is the difference between markup and margin?
Markup is profit divided by cost; margin is profit divided by price. A 25% markup gives a 20% margin.
What is a normal contractor profit margin?
There is no single normal figure; it depends on the trade, contract type, company size and overheads. Work out yours from your real overheads and the net margin you need.
How do I price for a target margin?
Divide cost by (1 − target margin). For a 20% margin on EGP 100,000 cost, price at EGP 125,000.
How do I protect profit on a cost-plus job?
Record every cost on the project, including materials the client pays for directly, because your fee is a percentage of total cost. Agree in writing what counts in the fee base.
Sources
youm7, 30 May 2017 (Egyptian expert: contractors' margins 4–5%); Buildern, June 2026 (US, CFMA figures); Google autocomplete 2026-11-13. Accessed 2026-11-13.