How to Calculate Contractor Bids: Margin vs. Markup

Write the scope before the number

Define the work, quantities, exclusions, access assumptions and the period your quote covers. A margin calculation cannot compensate for an omitted task or an ambiguous allowance. Record which costs are firm quotes and which are your estimates.

Use a loaded hourly labor cost that includes the payroll burden you intend to cover. If $35 is a wage alone, add applicable burden before using this example. Record materials, expected waste, subcontractors, equipment, travel and job-specific charges consistently.

Build a simplified full-cost total

This starter includes one fixed overhead allocation. The numbers are assumptions for explaining the arithmetic; they are not recommended hourly rates or margin targets.

Do not add the same overhead twice. A fixed allocation and an overhead percentage of the selling price are different ways of modeling it.

Compare target margin with markup

Bid for a target margin = full cost ÷ (1 − target margin)

At 25% margin, $2,800 ÷ 0.75 = $3,733.333333…. It displays as $3,733.33 to the nearest cent. Because that rounded quote is fractionally below the exact result, quote at least $3,733.34 if you require a minimum 25% margin on these costs.

A 25% markup instead gives $2,800 × 1.25 = $3,500. The $700 difference is 20% of the $3,500 selling price. Calling that 25% margin overstates what the bid leaves.

A target is an input, not a benchmark for your trade or evidence that the customer will accept the price. Recalculate using the final price after any discount, allowance or scope change.

Use the free bid CSV

1. Open the comma-separated CSV in Excel. Replace labor hours, loaded hourly cost, materials, subcontractors and fixed overhead in columns B–F with your own nonnegative estimates.
2. Enter 0.25 for 25% in the target-margin and markup-rate columns. Rates of 1 or more and negative target margins produce CHECK MARGIN.
3. Formula columns H–L show full cost, target bid, markup bid and the margin at that markup. If imported as text, re-enter the leading equals signs. Preserve formulas when copying a row.
4. Check the $2,800 cost, $3,733.33 displayed margin bid and $3,500 markup bid before changing assumptions. Resolve CHECK COST and CHECK PRICE rather than quoting them.
5. Save an XLSX working copy and use the exact final quote to verify the realized margin. CSV does not retain number formats or a formatted bid document.

Keep the full planner's model separate

The Contractor Bid Planner is an offline browser tool. It models crew hours with payroll burden, material waste, subcontractors and equipment, then overhead and profit as shares of the selling price, with bond and permit assumptions. It compares realized margins, break-even bids and several profit levels.

This free CSV treats overhead as a fixed dollar cost and has one margin input. Do not transfer its $200 overhead allocation into the complete planner's percentage field. Read that planner's included arithmetic notes when comparing results.

The simplified example has no separate contingency, bond, permits, tax or equipment allowance. Add and document applicable costs before quoting an actual job. Review the other offline planners if the task is a recurring cleaning visit or a program budget instead.