Markup vs Margin for Electrical Contractors
It is possible to stay busy and still miss your profit target. One common pricing mistake is treating markup and margin as the same percentage. They use different starting points.
Markup vs Margin Basis
Markup is the amount added to cost, expressed as a percentage of cost. Margin is the amount left after the costs included in your calculation, expressed as a percentage of the selling price. If a job costs $100 and you add 25% markup, the price is $125. The $25 difference is 20% of the selling price, not 25%. If that $100 excludes overhead, the difference is not net profit.
Target Margin Pricing
Selling price = total estimated job cost / (1 - target margin). With $100 of total estimated costs and a 25% target margin, the price is $133.33 before rounding. Use decimals in the formula: 25% is 0.25. Total estimated cost should include labor, materials, subcontractors, other job costs, allocated overhead and an appropriate contingency. Count each cost once.
Common Bidding Errors
Wages alone omit employer labor costs. Nonbillable time reduces the hours available to recover those costs. Vehicles, insurance and office costs need a consistent overhead allocation. Material-heavy jobs still need to recover business costs. A markup on materials alone does not establish a margin for the whole job.
Working Calculations
Set your company assumptions, build the job cost, calculate the target-margin price, and compare it with any markup floor you use. Review the higher price against the scope and market before quoting. The Electrical Contractor Profit & Pricing System is a downloadable Excel v2.2 workbook that compares break-even, markup floor and recommended selling price. It includes Start Here, User Manual and License PDFs, with a 30-day money-back guarantee. A calculated margin is an estimate, not a guarantee of actual profit.