Markup vs Margin (Stop Confusing These)
The single most expensive math mistake in contracting. Markup is a percent of cost. Margin is a percent of price.
- Markup formula: Price = Cost × (1 + Markup%)
- Margin formula: Margin% = (Price − Cost) / Price
If your cost is $100:
- 50% markup → $150 price → 33% margin
- To get a 50% margin → you need 100% markup → $200 price
The conversion: Markup% = Margin% / (1 − Margin%).
Burdened Labor Cost
The true hourly cost of an employee — never use the base wage when pricing.
Burdened rate = Base wage × (1 + burden multiplier)
Burden multiplier covers:
- FICA / Medicare (7.65%)
- FUTA / SUTA (~1-6% combined)
- Workers comp (varies wildly by trade — 5-15% common)
- Health insurance (~$400-$1,000/mo per employee)
- PTO / holidays (~8% of gross)
- Truck, phone, tools allocation
Typical multiplier: 1.25x to 1.6x. A $30/hr tech actually costs you $37.50-$48/hr loaded.
Break-Even Hourly Rate (Your Bare Minimum)
Break-even = (Burdened labor + Allocated overhead) / Billable hours
Allocated overhead = office rent, insurance, software, marketing, owner's draw — divided across techs.
Billable hours = realistic productive hours. Solo contractor: ~1,200/yr. Tech with dispatcher: ~1,500-1,700/yr.
If you don't hit your break-even rate × billable hours, you lose money no matter how busy you are.
Target Gross Margin by Trade (2026)
| Trade | Survival | Healthy | Top-Tier |
|---|---|---|---|
| HVAC service | 30-40% | 40-50% | 50-60% |
| HVAC install | 25-35% | 35-45% | 45%+ |
| Plumbing service | 35-45% | 45-55% | 55%+ |
| Electrical service | 35-45% | 45-55% | 55%+ |
| Roofing (residential) | 25-30% | 30-40% | 40%+ |
| Painting | 30-40% | 40-50% | 50%+ |
| Landscaping (maintenance) | 40-50% | 50-60% | 60%+ |
| Landscaping (install) | 25-35% | 35-45% | 45%+ |
| Concrete | 20-30% | 30-40% | 40%+ |
| Residential GC | 15-20% | 20-30% | 30%+ |
| Commercial GC | 8-12% | 12-18% | 18%+ |
Net margin (after overhead) is typically 5-15 points lower than gross. A "healthy" HVAC service business at 45% gross might net 10-15%.
Material Markup
Materials should always be marked up — the markup covers your truck stocking, returns, financing, and waste. Typical material markups:
- Service trades (HVAC, plumbing, electrical): 100-200% markup (50-67% margin) on parts
- Roofing: 20-35% markup (17-26% margin) on materials
- Painting: 30-50% markup on paint and supplies
- GC / remodel: 15-25% markup on subbed materials, higher on retail-purchased
Worked Examples
Example 1: Plumbing service call
- Burdened labor (2 hrs × $45) = $90
- Parts cost = $60
- Truck + overhead allocation = $40
- Total cost: $190
- Target 50% margin → Price = $190 / (1 − 0.50) = $380
Example 2: Roof replacement
- Materials = $8,000 (×1.25 markup = $10,000 priced)
- Labor crew (3 days, 4 people @ $55 burdened) = $5,280
- Dump fees + permit = $400
- Total cost: $13,680
- Target 32% margin → Price = $13,680 / (1 − 0.32) = $20,118