Markup and Margin Calculator for Subcontractor Bids

Short answer: Markup is your profit as a percentage of cost. Margin is the same profit as a percentage of the sell price. The sell price is always larger than the cost, so the margin is always smaller than the markup. A 10% markup on a $500,000 subcontractor bid gives a $550,000 sell price, $50,000 of profit, and a 9.09% margin.

Key takeaways

• Markup = profit ÷ cost. Margin = profit ÷ sell price.
• Markup to margin: margin = markup ÷ (100 + markup) × 100.
• Margin to markup: markup = margin ÷ (100 − margin) × 100.
• A fee stated as a percentage of the cost of the work, as AIA A102 allows, is a markup. A 5% fee on cost is a 4.76% margin.
• Markups on change orders multiply. A sub's 10% plus your 5% is 15.5% over the sub's cost.

How do markup and margin differ on a subcontractor bid?

Markup and margin measure the same profit dollars against different bases. Markup divides the profit by the cost you start from, here the subcontractor's bid. Margin divides the same profit by the price you sell at. You mark up a sub bid to set your price. Your CFO reads margin to see how much of each revenue dollar the company keeps.

The gap between markup and margin grows as the percentage grows. At a 5% markup, the margin is 4.76%, about a quarter point lower. At a 25% markup, the margin is only 20%. If you set your markup equal to the margin you want, you fall short every time.

How does the calculator work?

You enter three numbers. Subcontract cost is the bid you carry for the package after leveling. Markup on cost is the percentage you add to that bid. Target margin is the share of the sell price you want to keep.

The calculator returns five figures. Enter percentages as whole numbers (10, not 0.1).

1. Sell price is the subcontract cost times (1 + markup ÷ 100).
2. Markup in dollars is the subcontract cost times the markup ÷ 100.
3. Margin at this markup is the markup ÷ (100 + markup), times 100.
4. Markup needed for the target margin is the target margin ÷ (100 − target margin), times 100.
5. Sell price at the target margin is the subcontract cost ÷ (1 − target margin ÷ 100).

Worked example: a $500,000 subcontractor bid

The calculator opens with this example. Your leveled drywall bid is $500,000, and you carry a 10% markup. You also want to know what a true 10% margin would take.

• Sell price: $500,000 × 1.10 = $550,000.
• Markup in dollars: $500,000 × 0.10 = $50,000.
• Margin at this markup: 10 ÷ 110 × 100 = 9.09%. Check it: $50,000 ÷ $550,000 = 9.09%.
• Markup needed for a 10% margin: 10 ÷ 90 × 100 = 11.11%.
• Sell price at a 10% margin: $500,000 ÷ 0.90 = $555,555.56. The profit is $55,555.56, which is 10% of $555,555.56.

The 10% markup leaves $5,555.56 short of a 10% margin on this one package. The shortfall grows with every package you price the same way.

Markup to margin conversion table

Each row uses the $500,000 subcontract cost from the worked example. The margin column is profit ÷ sell price, rounded to two decimals.

To work the other way, start from the margin you want. The markup column is margin ÷ (100 − margin) × 100.

Where does a general contractor apply its fee on subcontractor bids?

On a cost-plus-fee contract, the general contractor applies its fee to the cost of the work, and subcontract costs are part of that cost. AIA Document A102–2017 sets the contract sum as the cost of the work plus the contractor's fee. Its Section 7.3 counts payments to subcontractors as cost of the work. Its Section 5.1.1 lets the parties state the fee as a lump sum or a percentage of the cost of the work.

A fee written as a percentage of cost is a markup. A 5% fee on $10,000,000 of cost adds $500,000, for a contract sum of $10,500,000. That fee is 4.76% of the contract sum, not 5%. If your company sets margin targets on revenue, convert the fee before you agree to it.

The A102 guaranteed maximum price caps the cost of the work and the fee together. Section 5.2.1 says the contractor pays any cost that would push the contract sum past it. So your fee percentage and your subcontract buyout both sit under one ceiling.

ConsensusDocs 500, the construction manager at-risk agreement, follows the same pattern. Its guidebook describes the contract sum as the cost of the work plus the construction manager's fee. It asks the parties to state the fee as a stipulated sum or on another basis.

How does the fee show on a bid summary?

On a cost-plus-fee bid, the fee is its own line. A102 makes the contract sum the cost of the work plus the fee. So your bid summary totals the subcontract packages and your other costs, then adds the fee on that total. The owner can check the fee line against the rate in the agreement.

On a lump-sum bid, the owner sees one price, and your markup sits inside it. The calculator's math holds either way. In Consight, each bid package's fee and markup rows sit on its scope sheet, and the totals and award update after every fee rate edit.

How do markups stack on change orders?

On a change, the subcontractor marks up its own cost, and then you mark up the sub's price. AIA A201–2017 Section 7.3.4 lets the architect price a disputed change from cost plus "an amount for overhead and profit as set forth in the Agreement." When the agreement names no amount, the architect uses a reasonable one. A102 Section 5.1.3 gives the parties a place to limit a subcontractor's overhead and profit on increases.

Stacked markups multiply. Take a change that costs the sub $100,000. The sub adds 10% and prices the change at $110,000. You add 5% to that and bill $115,500. The total over the sub's cost is 15.5%, not 15%. Your own $5,500 is a 4.76% margin on the $115,500.

Is the calculator's margin gross or net?

The calculator gives gross margin on the package: the sell price minus the subcontract cost. Your markup has to cover your office overhead as well as profit. That is why A201 calls the change-order amount "overhead and profit." Your net margin is what stays after overhead.

Frequently asked questions

Is a 10% markup the same as a 10% margin?

No. A 10% markup gives a 9.09% margin. To keep a 10% margin, you need an 11.11% markup.

How do you convert markup to margin?

Divide the markup by 100 plus the markup, then multiply by 100. A 20% markup is 20 ÷ 120 × 100 = 16.67% margin.

How do you convert margin to markup?

Divide the margin by 100 minus the margin, then multiply by 100. A 20% margin needs 20 ÷ 80 × 100 = 25% markup.

Why does the calculator show a dash for a 100% target margin?

A 100% margin would leave no room for cost, so no markup reaches it. The formula divides by zero, and the calculator shows a dash instead of a number.