Markup and margin are not the same number
This is the single most expensive arithmetic error in contracting. Markup is a percentage added to cost. Margin is a percentage of the selling price. A 20% markup produces only a 16.7% margin, and a contractor who prices at "cost plus 20%" while believing they are earning 20% is quietly giving away 3.3 points of every dollar — often the entire net profit on a competitive job.
The conversion is exact and worth memorising: margin = markup ÷ (1 + markup). To earn a 20% margin you must mark up by 25%. To earn 25% margin you need 33.3% markup. The calculator shows both numbers side by side in the same result panel so the gap is impossible to miss.
Bid price = Total cost ÷ (1 − margin %)
Effective markup on cost = (Bid − Cost) ÷ Cost
20% margin → 25.0% markup
15% margin → 17.6% markup
10% margin → 11.1% markupLabour burden: why a $38 wage costs $52
You do not pay a wage. You pay a wage plus statutory taxes, workers compensation, general liability allocation, benefits, retirement match, paid time off and the small tools your crews consume. Most estimating errors start here, because the wage is the only part that appears on a timesheet.
| Component | Rate | Notes |
|---|---|---|
| FICA (employer) | 7.65% | Social Security to the wage cap plus Medicare |
| FUTA | 0.6% | Federal, capped at the first $7,000 of wages |
| SUTA | 1.5–4.5% | State and experience rated |
| Workers compensation | 3–15%+ | Class code driven — roofing far exceeds office |
| General liability allocation | 1–2% | Premium divided by payroll |
| Health & medical | 5–12% | Employer contribution only |
| Retirement match | 0–4% | 401(k) safe harbour is typically 3–4% |
| Paid time off & holidays | 5–9% | Paid hours not worked |
| Small tools & consumables | 1–3% | Usually forgotten entirely |
Overhead allocation: pricing the business, not just the job
Direct costs are the materials, labour, equipment and subcontractors that disappear into one specific job. Overhead is the cost of existing at all: the truck, the office, the estimator, the software, the insurance, the owner's salary. If overhead is not allocated into every bid, the volume of work increases while profit goes down — the most common failure pattern for growing contractors.
The practical method is an overhead rate applied to direct cost. Take annual overhead, divide it by annual direct cost volume, and you have your rate. If you run $1.2M of overhead against $8M of direct cost, your rate is 15%, and every bid carries 15% on top of direct cost before any profit.
- Overhead rate = annual overhead ÷ annual direct cost volume. Recalculate it annually, not once.
- Below roughly $2M of revenue, most contractors run 10–18% overhead. Above that, 8–12% as fixed costs spread.
- Jobs that "keep the crews busy" using marginal pricing destroy overhead recovery and rarely improve the bottom line.
- A job won at a 6% margin with 12% overhead is a loss, no matter what the contract says.
Cost codes turn an estimate into a control system
A bid is a promise; a cost code structure is how you find out whether you kept it. Breaking the estimate into line items — general conditions, site work, concrete, framing, MEP rough-in, finishes — gives you a baseline to compare actual costs against as the job runs, not after it closes.
The workbook ships a line-item cost breakdown that becomes both your client quotation and your cost baseline. That dual purpose is deliberate: quoting from the same structure you control costs with is what makes the feedback loop fast enough to matter on a 12-week job.
- Keep cost codes consistent across jobs — it is the only way to compare performance.
- Track committed cost (purchase orders issued) as well as actual cost paid out.
- Review every job at 50% completion; a variance found then is recoverable, one found at 95% is not.
- Carry a contingency line in the estimate so that your margin is not the contingency.
How to use this tool
- Enter direct costs. Materials, labour hours, base rate, equipment and subcontractor amounts. Use your actual supplier quotes and the crew hours you plan to consume.
- Set your burden and overhead rates. Labour burden from your payroll register, overhead from last year’s financials divided by direct cost volume. Update both annually.
- Choose a margin, then read the markup. Set the margin you need on the selling price, then look at the resulting markup on cost. If the markup looks too high to win the job, the problem is your cost base — not the margin.
- Download and stress-test the price. The workbook includes a margin-versus-overrun grid. Find the overrun percentage that wipes out your profit before you sign anything.
What is inside the download
Three linked tabs: a direct-cost build-up that produces a client-ready quotation, a full labour burden ledger (statutory plus discretionary) with a crew rate table, and a margin-versus-overrun sensitivity grid.
Cost Breakdown & Client Quote— a separate worksheet injob-costing-model.xlsx.Labor Burden Calculator— a separate worksheet injob-costing-model.xlsx.Bid & Margin Sensitivity— a separate worksheet injob-costing-model.xlsx.