Markup vs Margin for Home Builders: How to Price a House

Short answer: Markup is the percentage you add to a house's cost. Margin is the share of the selling price you keep. They are not the same number: a 25% markup on $400,000 of cost gives a $500,000 price and a 20% margin. To hit a target margin, divide cost by one minus that margin.

The two formulas

Markup = (price minus cost) divided by cost
Margin = (price minus cost) divided by price
Price for a target markup = cost times (1 plus markup)
Price for a target margin = cost divided by (1 minus margin)

The dollars of profit are the same either way. Only the base changes. Markup measures profit against cost, and margin measures it against the price. Because the price is always bigger than the cost, the margin percentage is always smaller than the markup percentage on the same house.

Quick conversion table

Markup to margin:

10% markup is a 9.1% margin
15% markup is a 13.0% margin
20% markup is a 16.7% margin
25% markup is a 20.0% margin
30% markup is a 23.1% margin

Margin you want, and the markup it takes:

10% margin needs an 11.1% markup
15% margin needs a 17.6% markup
20% margin needs a 25.0% markup
25% margin needs a 33.3% markup

To convert yourself: margin = markup divided by (1 plus markup), and markup = margin divided by (1 minus margin).

A worked example (SAMPLE, made-up numbers)

A builder wants a 20% margin on a custom home with $600,000 of estimated cost. They add 20% to the cost and quote $720,000. The profit is $120,000, which is only a 16.7% margin.

To keep 20% of the price, the house has to sell for $600,000 divided by 0.80, or $750,000. That is a 25% markup. Using the margin number as a markup left $30,000 off the price before a single nail was driven, and any overrun during the build comes out of what is left.

Build overhead and profit into the price

Overhead is the cost of running the company that is not tied to one house: office salaries, rent, insurance, software, vehicles and marketing. The markup on each house has to cover its share of overhead and still leave profit.

Buildertrend's pricing guide puts it as one formula: selling price = cost divided by (1 minus overhead % minus profit %), with both percentages measured against revenue. With $100,000 of cost, 15% overhead and 10% profit, the price is $100,000 divided by 0.75, or $133,333. That is a 33.3% markup, not 25%.

Measure overhead on the right base. Buildertrend's own example shows the same $75,000 of overhead is 15% of $500,000 in direct cost but 10% of $750,000 in income. If you price with margin, use overhead as a percent of income. Pull it from your profit and loss report at least once a quarter, because it changes as the company grows.

Where markup shows up in your contracts

Fixed-price homes: the markup is built into the contract price. The client never sees it, so your estimate has to carry it.
Cost-plus homes: the fee or markup is spelled out in the contract and applied to documented cost. See cost-plus vs fixed-price accounting.
Change orders and allowance overages: most contracts let you add a markup. Bill it every time. See change order tracking and allowance tracking.

Your books have to separate job cost from overhead

You can only see real margin per house if every cost that belongs to a house is coded to that house and cost code, and overhead stays in operating expenses. When house costs land in overhead, or overhead lands on a house, both the gross margin per house and your overhead percentage are wrong, and so is the next price you quote. See a chart of accounts for builders and how to job cost a custom home.

For context, NAHB reported in its Cost of Doing Business Study, 2025 Edition that single-family builders averaged a 20.7% gross profit margin and an 8.7% net profit margin in 2023. Those are averages across many kinds of builders. Your own closed houses are the better benchmark.

What to look at each month

Margin you priced into each house at contract
Projected margin today, from cost to date plus cost to finish
Final margin on each house that closed, compared with what you priced
Change orders and overages billed, with their markup
Overhead as a percent of revenue for the last quarter

If closed houses keep finishing below the margin you priced, the problem is usually one of three things: the markup was set as if it were a margin, overhead grew and the markup did not, or change orders went out without markup.

How we help

Each month our team codes every bill to the right house and cost code, keeps overhead separate, and shows priced, projected and final margin for every house in your monthly job cost report. Our founder reviews every close before it reaches you. This is part of job costing in Builder Books, $1,500 a month for up to 5 active homes. Builder Controller, $2,900 a month for 6 to 10 active homes, adds a monthly WIP schedule and a 13-week cash forecast. See pricing, construction bookkeeping or request an introduction.

Sources

Common questions

Is a 20% markup the same as a 20% margin?

No. A 20% markup is a 16.7% margin. To keep 20% of the price, you need a 25% markup.

Should I price with markup or margin?

Either works if you use the right formula. Many builders estimate with markup but set their target as a margin, so convert with markup = margin divided by (1 minus margin).

Does markup have to cover overhead?

Yes. Overhead is not in the house cost, so the markup has to pay for it and still leave profit.

Is markup on a cost-plus home set the same way?

On cost-plus work the fee or markup is whatever the contract says, applied to documented cost. Ask your attorney if the wording is unclear.

By John Mos, Founder. Updated October 27, 2026. We do not give tax or legal advice. Please ask your CPA or attorney.

Markup vs margin for home builders