7. Margin vs. Markup (You are calculating profit wrong)
The Nightmare: You aim for a 20% profit. You buy materials for $100. You "mark it up" 20% and sell it for $120. At the end of the year, you look at your bank account and the money isn't there. Why? Because you confused Markup with Margin.
The Dream: You price your jobs with confidence. You know exactly how much stays in your pocket after every job. You stop "buying work" and start making money.
The Lesson:
- Markup is what you add to the cost. ($100 cost + 20% markup = $120 price).
- Margin is what you keep from the price. (If you sell for $120, your profit is $20. $20 divided by $120 is only 16.6% margin).
The "Oh Sh*t" Math: If you want a 20% Margin on a $100 cost, you must charge $125, not $120.
Formula: Price = Cost / (1 - Desired Margin). Example: $100 / (1 - 0.20) = $100 / 0.80 = $125.
What breaks without it: Your bank account. You are literally underpricing every single job by 4-5% without knowing it.
Your Turn: Take your last estimate. Did you use Markup or Margin? Be honest. 👇
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7. Margin vs. Markup (You are calculating profit wrong)
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