Margin and markup,
the difference that decides what you earn.

Markup is a percentage added to cost to reach a selling price. Margin is profit expressed as a percentage of that selling price. They describe the same dollars from two different directions, and because the selling price is always larger than the cost, the same dollars are always a smaller percentage of the price than of the cost. A job that costs $100,000 and sells for $120,000 carries a 20 per cent markup and a 16.7 per cent margin. Both statements are true at once; they are simply answers to different questions.

Within the wider discipline covered in the estimating reference, markup is the working tool, because an estimate is built upward from cost. Margin is the measuring tool, because the business lives on revenue, pays its overheads out of revenue, and reports its profit as a share of revenue. An estimator quotes with markup; an accountant, a bank and a business plan all speak in margin. The two vocabularies meet on every quote, and the builder is the translator.

Why the confusion underprices work

The trap is mechanical. A builder decides the business needs to keep 20 per cent of revenue, then applies a 20 per cent markup because the words sound like the same thing. The markup delivers a 16.7 per cent margin, and the missing 3.3 per cent of revenue is gone on every job priced that way. No single job looks wrong, no invoice is incorrect and no client underpaid, which is why the error survives. It is a structural underpricing of the whole order book, and it compounds with volume rather than being diluted by it.

Margin is the last number applied and the first number decided. In the estimating workflow it goes on after the full cost base is assembled, the measured work priced from the cost database, the trade packages, and preliminaries, the cost of running the job itself. Everything under the margin line is a prediction of cost; the margin line is not a prediction at all. It is a decision about what the business must earn, which is why it belongs to the business rather than to any individual estimate. The estimate's job is to get the cost base right; the margin's job is to get the business paid.

Builders who quote off a gut markup discover their real margin at tax time, when the accountant reconciles a year of jobs into one number that nobody chose. The operators who avoid that treat margin as a policy decision, made from the overhead base and the profit the business should earn, written down, and applied to every estimate the same way. The per-job conversation is then about the cost base and the risk, never about shaving the margin to win the work. When a price has to move to win a job, they move it visibly, as a deliberate decision with a reason attached, rather than letting optimism rewrite the policy one quote at a time.

The same operators police the boundary between contingency and margin. Contingency that is never spent has a way of being silently counted as profit, which teaches the business that its margins are healthier than they are, right up until a job spends its contingency and the reported margin collapses. Keeping the two as separate lines, and reporting them separately at close-out, is a small discipline with a large payoff in honest numbers. In a soft market the discipline tightens rather than relaxes. Volume does not fix a margin problem, it multiplies it, and the builders who came through the recent contraction best were the ones who protected margin and managed capacity rather than chasing turnover, a pattern covered in building through a downturn.

Where software fits the workflow

The margin decided at estimate time only means something if the job reports against it. Traditionally the estimate lives in one file and the actuals in the accounting system, so the achieved margin is reconstructed months later, if at all. In VIABUILD the estimate becomes the job budget, and cost tracking holds actual and committed costs against it while the job runs, so the builder watches the margin move week by week instead of meeting it at tax time. The working practices behind that loop are covered in the builder cost tracking guide.

Margin itself is a commercial decision, but the numbers around it are shaped by tax and by state contract law. The points below are labelled by evidence class. They are general education, not tax or legal advice; confirm the current position with your accountant and the primary sources before relying on any of them.

• Government guidance. GST applies to most residential building work, and a GST-registered builder charges GST on the price and remits it through the business activity statement, claiming credits for GST paid on inputs. The GST a builder collects is not income and sits outside margin arithmetic. The ATO is the primary source for registration, invoicing and BAS obligations, and the treatment for a specific business belongs in a conversation with its accountant.
• Common practice. Cost databases, estimates and margin calculations are held GST-exclusive, and GST is added once, at the end, at the current rate (10 per cent at the time of writing, confirm against ATO guidance). A single GST-inclusive rate keyed into an exclusive database corrupts the cost base, and the markup then compounds the error into the price.
• Common practice. GST and calculation errors on incoming subcontractor invoices are a recurring administrative drag. An invoice that understates or omits GST distorts the recorded cost of the job, and therefore the achieved margin, until it is corrected. Builders who have been burned once tend to re-check every invoice from that trade, which is pure overhead; systematic checking of invoice arithmetic is the cheaper habit.
• Legislation. Domestic building contract legislation in each state and territory regulates how prime cost and provisional sum allowances are adjusted, and in several jurisdictions how the builder's margin may be applied to those adjustments and to variations. The rules and any prescribed percentages differ by jurisdiction and change over time, so confirm your contract and your state's current legislation rather than pricing from the mechanism alone.

Illustrative only, not a benchmark. A builder assembles a GST-exclusive cost base of $500,000 for a new home, covering trade packages, materials and preliminaries. Applying a 20 per cent markup prices the job at $600,000, a gross profit of $100,000, which is a 16.7 per cent margin. If the business's overheads run at 12 per cent of revenue, this job's share is $72,000, leaving $28,000 of net profit, about 4.7 per cent of the price. Now suppose the builder's policy, worked from overheads and target profit, genuinely requires a 20 per cent margin. The price must be $500,000 divided by 0.8, which is $625,000, and GST at 10 per cent then takes the client-facing price to $687,500. The difference between the two quotes is $25,000 on one job, produced entirely by which side of the conversion the builder stood on. Neither quote contains an error a client or a supplier would ever notice.

Markup (a percentage added to cost to reach the price), margin (profit as a share of the selling price), gross margin (price less direct job costs), net profit (what remains after overheads), overhead recovery (the share of margin that pays for the business), cost base (the full predicted cost the markup is applied to), GST-exclusive (a price or rate before GST is added), BAS (the business activity statement through which GST is remitted). Definitions for the wider vocabulary live in the construction glossary. With the margin decided as policy, the next number to hold separate from it is the allowance for identified risk, which is where contingency in residential estimating picks up.

• Australian Taxation Office , the primary source for GST registration, tax invoicing and business activity statement obligations for building businesses.
• Your state or territory's building regulator and fair trading body, for the domestic building contract rules that govern margin on variations and on prime cost and provisional sum adjustments in your jurisdiction.
• Your accountant, for how margin policy, overhead recovery and GST treatment apply to your specific business structure.