Every service business uses some form of cost-plus pricing — you start with what something costs you and add a percentage. The catch: that percentage can be expressed two different ways, and they produce wildly different prices on the same job. Quoting 30% when you meant 30% the other way can wipe out your entire profit on a job. Here is the difference, with formulas you can use today.
The formulas. Markup is added to cost. Price = Cost × (1 + Markup%). If a part costs you $100 and you mark it up 40%, you sell it for $140.
Markup-to-margin cheat sheet. Memorize this table or save it. It is the single most useful pricing reference for a service business.
Which one should you use?. Use markup when you are pricing parts and materials. It is simpler at the counter: cost × multiplier = price.
Setting a target margin for a service business. Service businesses typically need gross margins of 40–60% on the job (parts + labor combined) to cover overhead and leave a real profit. A 30% margin sounds healthy until you subtract truck payments, insurance, fuel, software, and your office time — most of which never gets billed to a customer.
Frequently asked questions
Is markup always higher than margin?
Yes, mathematically. Markup uses cost as the denominator (smaller number); margin uses price (larger number). Same dollar profit produces a bigger percentage when divided by the smaller number.
What is a healthy markup on materials for trades?
Most contractors mark up materials 25–50%. Specialty parts (HVAC components, custom-fabricated items) often run 75–100% markup to account for procurement time, returns, and warranty exposure.
What margin should I target on labor?
Labor margin should cover the loaded cost of your tech — wages, payroll taxes, workers comp, vehicle, tools — plus overhead and profit. That usually requires charging 2.5–3× the tech's hourly wage.
