Markup vs margin: the classic mistake
Markup is profit as a share of your cost. Margin is profit as a share of the price. Same dollars, different base — so the percentages are never the same.
Say a job costs you $100. Mark it up 50% and you charge $150. Your profit is $50, and $50 ÷ $150 is only a 33.3% margin, not 50%. To actually keep 50% of the price, you have to charge $200 — a 100% markup.
If you set a margin goal and then price with a markup of the same number, every job comes in under your goal. The gap grows the higher your target is.
How it works
- Job cost = parts + (labor hours × loaded labor cost per hour) + misc.
- Price = job cost ÷ (1 − target margin %). Divide, don't multiply: at a 50% margin, $100 of cost needs $200, not $150.
- Markup = gross profit ÷ job cost. Or straight from the margin: markup = margin ÷ (1 − margin).
- Margin from a markup: margin = markup ÷ (1 + markup).
Margin → markup
| Gross margin you want | Markup on cost it takes |
|---|---|
| 30% | 42.9% |
| 35% | 53.8% |
| 40% | 66.7% |
| 45% | 81.8% |
| 50% | 100% |
| 55% | 122.2% |
| 60% | 150% |
| 65% | 185.7% |
| 70% | 233.3% |
Markup → margin
| Markup on cost | Gross margin you actually get |
|---|---|
| 25% | 20% |
| 50% | 33.3% |
| 75% | 42.9% |
| 100% | 50% |
| 150% | 60% |
| 200% | 66.7% |
Things this leaves out
- Overhead. Gross margin is what's left after direct job costs. Rent, office staff, marketing, and your own pay still come out of it. If your loaded labor cost already includes overhead per hour (the break-even calculator's fully loaded rate does), your gross margin here is closer to net.
- Callbacks and warranty. A return trip costs labor you won't bill. Some owners build a small allowance into the job cost.
- Sales tax, financing fees, and card fees. Handle those however your state and your processor require.
We don't quote typical margins or markups here because we haven't found a solid public source for them. That's what the anonymous Owner Numbers survey collects, so owners can compare against real peers.
Related tools
Get the loaded labor cost for the form above from the HVAC break-even hourly rate calculator. Thinking about raising prices? The HVAC price increase calculator shows how many jobs you could lose before the increase stops paying. Pricing a maintenance plan instead? Try the HVAC maintenance agreement calculator. Wondering if your marketing pays for itself? The HVAC marketing ROI calculator uses your gross margin to show what a new customer really costs you.
Losing techs? The HVAC technician turnover cost calculator adds up what one departure really costs and the raise that money could fund instead.
Setting a revenue target? The HVAC revenue goal calculator turns it into jobs and calls per day, and revenue per tech.
Quoting Good, Better, and Best installs with financing? The HVAC financing payment calculator shows the monthly payment for each price and what you keep after the lender's dealer fee. Then put all three on one printable page with the HVAC good / better / best proposal builder.
Thinking about selling one day? The HVAC business valuation calculator turns your profit and add-backs into SDE and a value range.
Already know your job cost, or price with a markup? The HVAC markup vs margin calculator converts either way and shows the price, profit, and both percentages.
Want to check a finished job? The HVAC job profit calculator shows gross and net profit after overhead and commission, and the price that hits your target net margin.