Click This For Our Free Tool! What Markup Should I Use?
Many home builder consultants will tell you that knowing the difference between a Markup Percent and a Profit Margin Percent is key to having a successful home building business. It’s super important to understand that a MARKUP PERCENT is NOT the same thing as a Profit MARGIN PERCENT (sometimes called a Gross Profit Percent)! I have also heard consultants say, “If you don’t understand the difference, then it’s costing you money!
For example, if you have been advised that you need to earn a 20% Gross Profit Margin Percent, your MARKUP percent will need to be at least 25%! Watching our video farther down about using our Free Markup Tool will show you visually how that works. But here’s a quick candy bar example ……
CANDY BAR EXAMPLE:
If you buy a candy bar for 80 cents to resell for a dollar, the markup AMOUNT is 20 cents, or 25% of 80 cents. The MARKUP PERCENT is 25 percent.
The gross profit AMOUNT is also 20 cents, but it is 20% of a dollar. The GROSS PROFIT PERCENT (or GROSS MARGIN, if you prefer) is 20 percent.
CONCLUSION: The Gross Profit percent will ALWAYS be lower than the MARKUP percent! The MARKUP AMOUNT and the GROSS PROFIT AMOUNT are the same amount, but that amount is a larger percent of the COST than it is of the PRICE.
REFERENCES AND OUR FREE MARKUP TOOL:
Check Out This Video About Markup Versus Margin from The Journal Of Light Construction Site
AND this video: Understanding Margin To Determine Your Markup
by Shawn Van Dyke, author of the book Profit First For Contractors