Business Building: Maximize Your Mark-Up With Variable Rates!


Business Building: Maximize Your Mark-Up With Variable Rates!

I often get asked how much contractors should mark-up their work to make a profit. Construction company owners are looking for the magic percentage that’ll guarantee a profit on every job. But mark-up is tricky. It’s a function of what you need to cover your fixed overhead costs plus a profit margin combined with what the market will bear. Smart business owners realize all jobs are not equal and markup should vary with every job. When you use the same mark-up for every bid, you are not maximizing your profit potential or helping your company make more money. 

Markup Smaller Bigger! 

First, determine how much total annual mark-up for overhead you need to cover all of your fixed general and administrative expenses for the year. For example, if your total annual overhead is $500,000 and your total job costs are expected to be $5,000,000, you need an overhead markup of 10% to recover your overhead costs. Next, determine how much total annual profit you want to make for the risk you take. If you want to make $250,000 annual pre-tax net profit, your net profit markup must average 5% using the above example. Now you have a minimum markup of 10% for overhead and a total profit markup goal of 5% for a total of 15% overhead and profit. 

In the above example, the key is to average 15% total overhead and profit markup over the year. To maximize your bottom-line, consider using a variable markup system. You recognize the fact that smaller jobs often take the same time, energy, overhead, and supervision as bigger jobs do. Therefore you need to charge more on smaller jobs for overhead and profit to cover the added cost of managing them plus a larger profit margin to get a return on your time and energy. I recommend you create a “Variable Mark-Up Chart” similar to the example below for your company to use when marking up jobs of variable sizes. (DO NOT USE THESE MARKUP PERCENTAGES – THEY ARE JUST EXAMPLES!) 


   Job Costs         OH + P Projected 

Bid MarkUp     # Jobs    Total OH + P MarkUp 

$              0   to   $     50,000          30%    20              $    150,000 

$     50,000   to   $   100,000          20%     15          $    225.000 

$   100,001   to   $   200,000       15%    10          $    225,000 

$   200,001   to   $   400,000       10%      5          $    150,000  

Total OH & P Bid MarkUp  15% Average    50          $   750,000  

By having an annual goal of 15% total OH + P markup to realize your total goal of $750,000, you can make decisions about the number of jobs and at what rate you need to mark them up to meet your annual goals.   

Mark-uyour mark-up! 

Another way to improve your mark-up strategy is to breakout your overhead and profit mark-up as separate calculations. When pricing jobs and calculating the cost of change orders; most contractors leave money on the table by only using one total markup rate. When you blend your overhead and profit into one total OH + P mark-up like 25%, youre not marking up your fixed cost of doing business (your overhead) before you add your profit. See the example below: 

Job Costs$ 100,000 

OH & P MarkUp    @ 25%  25,000 

Total Bid Price$ 125,000 

Gross Profit Margin    20.00% 

Smart profitable business owners understand the power of marking up the entire cost of doing work on a project including overhead first. So, markup your overhead costs first to boost your bottom-line. Using the same total markup for overhead and profit of 25%, look at the better way to markup your jobs: 

Job Costs$ 100,000 

Overhead MarkUp @ 15%$   15,000 

Sub-Total$ 115,000 

Profit MarkUp 10%$   11,500 

Total Bid Price$ 126,500 

Gross Profit Margin    20.94% 

In the second example, you made an additional $1,500 or nearly 1% more gross profit. For every $1,000,000 of total sales volume for the year where you markup your markup, your bottom-line would increase by $9,400. Not bad for a little bit of extra math. To start now, get your copy of George’s ‘Profit 101 For Contractors’ email:” 


As a professional construction BIZCOACH and popular industry speaker, George Hedley helps contractors increase profits, grow and get their companies to work! He is the best-selling author of “Get Your Construction Business To Always Make A Profit!” available at his online bookstore at E-mail to sign-up for his free e-newsletter, join a peer mastermind BIZGROUP, attend a BIZ-BUILDER Boot Camp, implement the BIZ-BUILDER BLUEPRINT, or get a discount for online courses at

George Hedley CSP CPBC

HARDHAT Presentations

Phone:             (800) 851-8553



Words: George Hedley
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