Markup
Markup is the amount added to a direct cost to arrive at a selling price, expressed as a percentage of that cost.
Also written as mark-up, contractor markup.
Last updated
Reviewed by Eric Collin · President and Founder of Firmo Construction, 20+ years in preconstruction and bid evaluation
It is the mechanism by which overhead and profit is applied. A ten thousand dollar direct cost marked up fifteen percent is sold at eleven thousand five hundred, and the fifteen hundred covers the business and the return.
Markup and margin are not the same figure, and confusing them is a common and costly arithmetic error. Fifteen percent markup on cost is roughly thirteen percent margin on the sale price, and the higher the number the wider the gap. A contractor targeting a fifteen percent margin who marks up fifteen percent falls short every time.
In a subcontractor bid, markup is usually buried in the line items and not visible. It becomes explicit in two places: proposals that break out cost plus a stated fee, and change orders, where the contract normally sets the maximum markup allowed on added work and on the work of second-tier subcontractors.
Stacked markup is worth watching on any tiered scope. When a subcontractor marks up a sub-tier that has already marked up a supplier, the same percentage applies twice to the same underlying cost, and the total can be materially higher than any single number in the chain suggests.
- Overhead and profit
Overhead and profit is the markup a contractor adds to its direct costs to cover the expense of running the business and to earn a return on the work.
- Change order
A change order is a written amendment to a contract that adds, removes, or modifies work, adjusting the contract price and schedule accordingly.
- Unit price
A unit price is a rate per unit of measure — per cubic yard, per linear foot — used for work whose quantity cannot be known when the bid is submitted.
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