General Contractor Markup: How to Set Yours, and Why 20% Is Often Too Low

General contractor markup is the percent you add to a job's cost to set the price. Job cost is labor, materials and subs. The markup pays for everything else: your trucks, your office, your own time, and a profit. There is no one right number. Yours has to cover your overhead. For the average remodeler, that takes about a 43% markup on job cost.

What is general contractor markup?

Every job has two kinds of cost.

Job costs belong to one job. The crew's hours on it. The lumber. The electrician you hired for it.

Overhead is what it costs to stay open. Trucks, tools, the shop, phones, software, licenses, the bookkeeper, and your own pay if you don't bill it to jobs.

Markup is how overhead and profit get into the price. If the markup is too low, the jobs can look busy and still lose money.

Is a 30% markup the same as a 30% margin?

No. This is the most common pricing mistake in the trades.

Markup is a percent of cost. Margin is a percent of the price.

Say a job costs $10,000. You add a 30% markup. The price is $13,000. You keep $3,000. But $3,000 out of $13,000 is only 23%. That is your margin.

If you need to keep 30% of every dollar, you need about a 43% markup. A 30% markup will not get you there.

What markup do general contractors usually charge?

Many online guides say 15% to 30%. Those numbers are mostly written for homeowners checking a bid. They are not a target for you.

Here is a better yardstick. The National Association of Home Builders surveys remodelers on their real books. In its latest study, for 2024:

• The average remodeler kept a 29.9% gross margin.
• Overhead took 23.6% of revenue.
• That left a 6.3% net profit.

Run that margin backward and it is about a 43% markup on job cost. A firm charging 20% keeps less than 17%. That would not cover the average overhead.

Your numbers will be different. A one-truck shop and a firm with an office of five do not have the same overhead. That is why you set your own.

How do you figure out your own markup?

You need three numbers from last year. Your bookkeeper or CPA can pull them.

1. Overhead. Everything you spent that was not tied to one job.
2. Job costs. Labor, materials and subs on all your jobs.
3. Profit goal. What you want left over, in dollars, after everything.

Then do this:

Markup = (overhead + profit goal) ÷ job costs

That one number covers your costs and your goal. If you skip the profit goal, you get your break-even markup. Price below that and every job loses money.

A worked example

This is a made-up example. It is not a client.

A remodeling firm had $700,000 in job costs last year. Overhead was $230,000. The owner wants $70,000 in profit.

• Markup = ($230,000 + $70,000) ÷ $700,000 = about 43%
• Price for the year's work = $700,000 + $300,000 = $1,000,000
• Margin = $300,000 ÷ $1,000,000 = 30%

Now say the same firm charged a 20% markup, because that is what it read online.

• Price = $700,000 × 1.20 = $840,000
• After job costs, $140,000 is left.
• Overhead is $230,000.
• The year loses $90,000.

Same crews. Same jobs. Same hours. The only change is the markup.

What does a 40% markup mean?

It means you add 40% of the cost to set the price. A $5,000 cost becomes a $7,000 price. You keep $2,000, which is a 29% margin.

To mark up any cost, multiply by 1 plus the markup. A 20% markup on $500 is $500 × 1.20 = $600.

Should you mark up materials and subs differently?

Some contractors do. They put one markup on materials, another on subs, and another on labor. That can work. What matters is the total. Add up a year of jobs at those rates. The extra has to cover your overhead and your profit goal. If it doesn't, one of the rates is too low.

Why do contractors underprice?

• They copy a number. A competitor's 20%, or a figure from the internet. Their overhead is not yours.
• They mix up markup and margin. They want to keep 30% and add 30%. They keep 23%.
• They leave out their own pay. If you work in the business, your time is a cost.
• Overhead creeps up. A new truck, a second office hire. The markup stays the same.
• They fear losing the bid. But a job won at a loss is still a loss.

Check your markup once a year, when last year's books close.

How we help with pricing

Altus Financial is a business coaching firm in Northampton, MA. We work with trade firms and other service businesses. Pricing is part of Growth, one of the four areas we work in.

In Discovery, we look at a year of your jobs. We find what each kind of work really costs you. Then we help you set prices that cover it, and check them as the business grows.

We don't do your books or your taxes. Your bookkeeper and CPA do. We use what they give us.

Want to talk through your pricing? Book a Founders Call. It takes 20 to 30 minutes.