Markup Is Not Margin, and the Difference Is Your Profit

The two numbers

Markup is what you add to your cost. Margin is what you keep from the price. A $100 cost with a 25% markup sells at $125, and the $25 you kept is 20% of $125. So a 25% markup is a 20% margin.

That sounds like a technicality until it is applied to a job. On $200,000 of trade cost, believing a 25% markup gives you a 25% margin overstates your profit by about $10,000, and you will have priced the job as though the money is there.

The conversion, both directions

Margin equals markup divided by one plus markup. Turned around, the markup you need equals your target margin divided by one minus that margin. The table is easier than the formula.

What firms here actually apply

Published guidance for Singapore ID firms puts typical markup on trade work between 20% and 40%, blending out to roughly a 28% to 35% gross margin on a normal residential job.

Read that table again against those two ranges and the tension is obvious. A 30% markup, which sounds healthy and sits in the middle of the range, produces a 23% margin, which is below the blended target. Reaching 35% takes a markup above 50%, and very few quotations carry that number on every line.

Which is why the blend matters more than any single rate. The margin comes from a mix: a higher markup on the trades you manage closely and carry risk on, a lower one on the pass-through items where you are adding little.

Why a single markup across everything loses money

Carpentry is commonly around thirty per cent of a renovation budget and it is the trade you supervise most, revise most and carry the most risk on. Pass-through supply items need almost none of your time.

Applying one rate to both means either underpricing the work that costs you attention or overpricing the work a client can price-check in five minutes online. Setting markup per trade rather than across the quotation is the fix, and it is the single change that moves a blended margin fastest.

• —Higher on trades you supervise, revise and warrant
• —Lower on straight supply, where the client can compare easily
• —Per-item override for the job that does not fit either

Knowing your margin while you quote, not after

Most firms discover their margin at the end of the job, which is the one moment it can no longer be changed. The alternative is holding cost, markup and selling price on the same row while you build the quotation, so the number you are choosing is visible as you choose it.

That is what supplier presets are for: your own contractor rates, your markup per trade, the selling price computed rather than typed, and the cost column kept off the document the client sees.

Discounts come out of margin, not out of price

A ten per cent discount on a job carrying a 23% margin does not leave you with 13%. It removes ten per cent of the revenue while every cost stays exactly where it was, so on a $100 cost priced at $130, a $13 discount takes $30 of profit down to $17. Nearly half.

This is the arithmetic worth having in your head at the moment a client asks, because it is always asked at the end of a long meeting when saying yes is easiest.