How Much Should Contractors Mark Up a Job?

The average residential remodeler’s numbers work out to about a 43% contractor markup on job costs. According to the National Association of Home Builders (NAHB), remodeling businesses spent an average of 70.1% of their 2024 revenue on cost of sales, leaving a 29.9% gross profit margin. That works out to a 42.7% markup. After operating expenses, including the owner’s compensation, those businesses kept 6.3%.

Six cents on the dollar. At a 43% markup.

That’s an average for residential remodelers, not a rate to copy. A one-person handyman shop and a general contractor coordinating five subcontractors carry different expenses. Your contractor markup has to cover your own job costs and overhead while leaving enough profit to make the work worthwhile.

What Is a Typical Contractor Markup?

The NAHB’s 2026 Remodelers’ Cost of Doing Business Study reports the following averages for residential remodeling businesses in 2024:

Cost of sales includes labor, materials, and trade contractors. Operating expenses include indirect construction costs, financing, sales and marketing, general administration, and owner compensation.

The average markup implied by those figures is:

29.9% ÷ 70.1% × 100 = 42.7%

For every $10,000 spent on costs classified as cost of sales, a 42.7% markup produces a selling price of roughly $14,270.

Compare that with a 20% markup. It produces a gross margin of just 16.7%. A business operating with the NAHB averages would have 23.6% in operating expenses to cover.

It would be operating at a loss.

The study covers residential remodelers, so use its numbers as a reference when reviewing your own pricing. Specialty contractors and businesses with different operating models can have very different cost structures.

How to Calculate Your Contractor Markup

You need four numbers: direct job costs, allocated overhead, target profit, and selling price.

We’ll use the same small remodeling job throughout.

Step 1: Calculate Your Direct Job Costs

The contractor estimates $10,000 in direct costs: $3,500 for materials, $4,000 for labor, $2,000 for a subcontractor, and $500 for equipment and miscellaneous expenses.

Labor costs include wages, employer payroll taxes, workers’ compensation, and other labor burden. Materials include the quantities required to finish the job, along with waste and delivery costs.

If you’re doing some of the work yourself, include those hours. Spending three days installing cabinets still costs the business labor, even when you’re the owner.

Cinderblock’s Labor Cost Calculator can help work out what an employee actually costs per hour.

Step 2: Add Your Share of Overhead

The contractor has $120,000 in annual overhead. That covers expenses such as business insurance, bookkeeping, office staff, and administration that aren’t already charged directly to jobs.

The company expects 6,000 productive labor hours during the year.

$120,000 ÷ 6,000 hours = $20 in overhead per productive hour

The remodeling job requires 100 productive labor hours.

100 hours × $20 = $2,000 in allocated overhead

The job now needs to recover $12,000 before making any profit.

This allocation depends on the company’s workload. If the crew completes only 4,800 productive hours during the year, the overhead rate rises to $25 per hour.

The business still has the same $120,000 in bills.

Step 3: Set Your Target Profit

The contractor wants $2,000 in profit from the job.

Add that to the $10,000 in direct costs and $2,000 in overhead:

$10,000 + $2,000 + $2,000 = $14,000 selling price

The target profit is what’s left after recovering the estimated costs.

Pay for your hands-on construction work belongs in labor costs. Compensation for managing the business also needs to be included in the company’s cost structure.

NAHB’s remodeling study includes owner compensation in operating expenses. Its reported 6.3% average net profit margin comes after that expense.

Step 4: Calculate Your Markup

Use this formula:

Markup (%) = (Selling Price − Cost) ÷ Cost × 100

For our job, we’re calculating markup on direct costs.

($14,000 − $10,000) ÷ $10,000 × 100 = 40%

A 40% markup covers the $2,000 overhead allocation and leaves $2,000 in target profit.

If you calculate markup on the full $12,000 cost, including overhead, you get 16.7%. The price stays at $14,000. Only the cost basis changes.

Use the same cost basis when comparing jobs. Otherwise, two estimates with identical selling prices can appear to have very different markups.

Check your own numbers with the free Markup & Margin Calculator.

What Should Contractors Mark Up?

Labor, materials, subcontractors, and equipment all contribute to job costs. Some contractors apply separate markups to different categories. Others apply one percentage to total direct costs.

Either way, start with the actual expense.

Labor

A $30 hourly wage costs more than $30 an hour once employer payroll taxes, workers’ compensation, and benefits are included.

Then there’s supervision and business overhead.

If your loaded labor rate already accounts for certain expenses, keep those expenses out of your overhead calculation. Charging them twice inflates your estimate.

Materials

You buy $500 in materials from a supplier. Someone spends an hour collecting them, uses the truck to deliver them, and returns later for two missing fittings.

The supplier invoice still says $500.

Your business spent more.

Include purchasing time, delivery, handling, and expected waste in material pricing or recover them through the overall job price.

Subcontractors

A general contractor hires an electrician for $2,000 as part of a remodeling job.

The electrician performs the electrical work. The general contractor still coordinates scheduling, manages communication with the homeowner, and makes sure the electrical work fits the rest of the project.

Those hours belong in the estimate.

General contractor markup on subcontractors needs to account for coordination costs and the profit the GC expects from managing that work.

On a project with several trades, scheduling conflicts and extra site visits can add up quickly.

For more on managing outside trades, see How Contractors Scale Their Business With Subcontractors.

Equipment and Other Job Expenses

Equipment rentals, disposal fees, temporary site protection, and job-specific charges need their own allowances.

A three-day lift rental should include the rental period, delivery, and other related charges.

Miss a $600 rental expense on a job expected to earn $2,000, and you’ve already lost 30% of your projected profit.

Contractor Markup Example: Pricing a Job With $10,000 in Costs

Our contractor estimates a residential remodeling project:

These are illustrative figures.

The contractor needs a 40% markup on direct costs to reach that selling price.

Now compare it with a 20% markup.

At 20%, everything gets paid except the business.

The crew gets paid. The supplier gets paid. The insurance bill gets paid.

No profit.

And both scenarios assume the job finishes exactly on budget. One missed expense or an extra day on site can put that 20% markup job into a loss.

Cinderblock’s Job Pricing Calculator can help calculate a selling price using your own costs and target profit margin.

Contractor Markup vs. Profit Margin

Markup uses cost as the denominator. Profit margin uses selling price.

Suppose a job has $5,000 in costs and sells for $6,250. The difference is $1,250.

• Markup: $1,250 ÷ $5,000 = 25%
• Profit margin: $1,250 ÷ $6,250 = 20%

The costs included in the calculation determine which type of margin you’re measuring.

On our remodeling job, the 40% markup on $10,000 in direct costs produces a 28.6% gross margin.

After the $2,000 allocated overhead, the remaining $2,000 represents a 14.3% profit margin on the $14,000 selling price, assuming no other expenses.

If you’re aiming for a 20% margin, adding a 20% markup won’t get you there.

The Markup & Margin Calculator handles the conversion and shows the selling price required for either target.

Where Contractor Markups Go Wrong

Missing Costs in the Estimate

A markup can’t recover costs you’ve overlooked.

Extra demolition, material waste, and unplanned equipment rentals can take a substantial bite out of profit.

Check previous jobs before estimating the next one. If bathroom demolitions routinely take 12 hours instead of the eight you allow, price the 12 hours.

Using the Same Markup on Every Job

An open, empty house gives a crew room to work. An occupied remodel with restricted hours and difficult access takes more time.

Price those differences into labor and other cost allowances.

Get fresh supplier quotes when material prices are changing. Include additional supervision when a job involves several subcontractors.

Counting Expenses Twice

Your loaded labor rate may already include payroll taxes and workers’ compensation.

Putting those expenses into overhead again means you’re charging for the same costs twice.

Review the expenses included in your labor rates before setting your overhead allocation.

Leaving Out Your Own Pay

A working owner spends 30 hours installing trim and records zero labor cost for those hours.

The estimate shows more profit than the job actually produced after accounting for the owner’s work.

Assign your labor a cost, even if you don’t receive an hourly paycheck.

Never Checking Actual Job Costs

Our remodeling contractor estimated 100 labor hours at a loaded cost of $40 per hour.

The job takes 125 hours.

That’s another $1,000 in direct labor costs. Under the same labor-hour allocation method, the extra 25 hours also carry $500 in allocated overhead.

The job was expected to earn $2,000.

With the customer price unchanged and all other estimates holding, its profit contribution under that allocation method falls to $500.

That’s $500 on a $14,000 job.

How to Know Whether Your Markup Is Working

Compare the estimate with the actual costs after every job.

Check labor hours, material purchases, subcontractor invoices, and equipment expenses. Record where costs ran over and where they came in below estimate.

If your crew repeatedly needs 15% more hours than estimated, correct the labor allowances. If material waste keeps exceeding the budget, update the quantities.

Compare the overhead recovered across completed jobs with what the business actually spent, too. An accurate markup on individual jobs won’t cover the annual overhead budget if there aren’t enough jobs.

Cinderblock’s job costing features, available on the Build plan, help contractors track labor, materials, purchase orders, and manually entered costs against their jobs.

Use completed job costs to set the next estimate. If you need to check what a different markup or target margin does to your price, run it through the free Markup & Margin Calculator.