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Estimating & Bidding

Markup

In Plain English

The percentage a contractor adds to their costs to cover overhead and make a profit.

Definition

Markup is the amount added to a contractor's estimated direct and indirect costs to cover overhead and profit. It is typically expressed as a percentage of cost and applied to labor, materials, subcontractor, and equipment costs. Markup rates vary by contractor, market conditions, and project risk.

Why It Matters in Bidding

Markup is where a contractor's profitability is won or lost, since it converts raw estimated cost into the bid price that competes for award. Set it too high and the bid loses to lower competitors; too low and the job cannot cover overhead and profit. Estimators tune markup against market conditions, project risk, and backlog on every bid.

Example

On a base cost of $200,000, the subcontractor applied a 20% markup, adding $40,000 for overhead and profit to reach a $240,000 bid.

Related Terms

OverheadProfitIndirect CostsEstimate

Frequently Asked Questions

Markup is calculated as a percentage of cost, while margin is a percentage of the final selling price. A 25% markup on $100 of cost yields a $125 price, but that is only a 20% margin. Confusing the two causes contractors to under-recover profit, a frequent and costly estimating error.
They weigh fixed overhead they must recover, target profit, project risk, competition, and current backlog. A risky, complex job or a slow bidding climate may justify higher markup, while a hungry contractor chasing work may shave it. Many firms set a floor markup that still covers overhead to avoid bidding below true cost.
Not always. Many contractors apply a higher markup to self-performed labor and materials, which carry more risk, and a lower markup to subcontractor and supplier costs, which the sub already marked up. Some contracts cap markup on change orders, so estimators must follow the specific markup rules the contract defines.

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