Gross Margin vs. Markup for Contractor Quotes: Formulas and Examples

Markup divides profit by cost. Gross margin divides profit by selling price. They describe the same quote from different starting points, so a 30% markup does not produce a 30% gross margin.

For example, a job with estimated direct costs of 700 and a selling price of 1,000 has estimated gross profit of 300. Its markup is 300 ÷ 700 = 42.86%. Its gross margin is 300 ÷ 1,000 = 30%. All examples here exclude sales tax and use fictional amounts in a single currency.

One quote, three calculations

Measure	Formula	Example
Estimated gross profit	Selling price − estimated direct costs	1,000 − 700 = 300
Markup	Estimated gross profit ÷ estimated direct costs × 100	300 ÷ 700 × 100 = 42.86%
Gross margin	Estimated gross profit ÷ selling price × 100	300 ÷ 1,000 × 100 = 30%

Label the percentage wherever you write it. A note that says only “30%” is ambiguous. A note that says “30% estimated gross margin, using direct job costs of 700” tells the next reader exactly what the calculation means.

Why adding 30% to cost gives a different answer

Start with 700 in costs. Adding 30% of those costs adds 210, giving a selling price of 910. Estimated gross profit is 210. Divide that by the selling price of 910 and the gross margin is 23.08%.

To calculate the price for a chosen 30% gross margin, divide 700 by 0.70 instead. The result is 1,000. The 0.70 represents the share of the price left for the costs in this example. This is arithmetic, not a recommendation that your business should use a 30% margin.

Markup-to-margin reference table

With positive costs and selling prices, margin rate = markup rate ÷ (1 + markup rate). Use decimal rates in the formula: 50% becomes 0.50.

Markup on cost	Equivalent gross margin	Price if cost is 100
10%	9.09%	110
20%	16.67%	120
30%	23.08%	130
50%	33.33%	150
100%	50.00%	200

Use a consistent cost basis

Decide what the estimate includes before comparing two jobs. If one calculation includes materials and direct labour, while another includes only materials, the percentages are not comparable. Write down the quantities, labour assumptions and job-specific charges behind the cost total.

Keep estimated and actual results separate. A quote can show a healthy estimated margin and still finish with a lower actual margin if time or materials exceed the estimate. General overhead and other expenses may also remain to be covered; estimated gross profit is not net profit or take-home pay.

A quick check before sending

• Is the selling price before sales tax?
• Have you included the intended direct costs consistently?
• Does every percentage say “markup” or “gross margin”?
• Are the cost assumptions documented?
• If you changed the price, did you recalculate profit and margin?

For a price reduction, use the quote-discount worksheet and worked examples. It compares an unchanged scope with a smaller scope and provides a copyable decision record.

Optional app workflow

Publisher disclosure: Quote Margin Workshop is published by the maker of ScopeBid, an app by James Gray. ScopeBid: Estimate & Invoice displays price, direct cost, estimated gross profit, margin and markup while preparing a quote. Its listing describes the first three quotes with PDF export as free, with optional Pro access. The current iPhone and iPad version requires iOS 18 or later.

Check ScopeBid’s current App Store listing. You can also use every calculation on this page without downloading anything.

Published October 25, 2026. App details checked against the App Store on that date. Percentages rounded to two decimal places. Margin is undefined at a zero selling price; markup is undefined at zero cost.