Markup Is Not Margin — and in Restoration That Gap Is Your Profit

You mark your jobs up. You know your costs, you add your percentage, you send the estimate. And yet the year closes and the profit isn't the number you had in your head. Not by a little — by a gap big enough to notice. Before you go blaming slow-pay carriers or a bad month, check the arithmetic, because there's a good chance you've been quietly losing points on every single job to a mistake that hides in plain sight. It has a name, and it's one of the most common costing errors contractors make.

The idea: a markup and a margin are not the same number

Here's the trap. You take a job that costs you $100 and you "add 20%." You charge $120, and in your head you just made a 20% margin. You didn't. You made 16.7%.

The reason is that markup and margin are measured against two different numbers. Markup is your profit as a percentage of cost — the smaller number. Margin is your profit as a percentage of the price you charged — the bigger number. Same $20 of profit, two different denominators. On a $120 job, $20 of profit is one-sixth of the sale, or 16.7%. The 20% you thought you were making was never on the table.

Run it up the scale and the gap gets worse, not better:

• A 20% markup is a 16.7% margin.
• A 25% markup is a 20% margin.
• A 50% markup is a 33.3% margin.

Flip it around, because this is the version that matters at the estimate: if you actually want to keep 20% of the sale, you can't mark up 20% — you have to mark up 25%. Want a true 30% margin? That's a 42.9% markup. Standard cost-accounting references lay the conversion out plainly (a 20% margin requires a 25% markup; a 30% margin requires a 42.9% markup). The percentages that live in your head as "the same thing" are off by a predictable, compounding amount — and it always cuts in the direction that costs you.

The restoration translation

Now here's why this isn't an abstract math lesson for restoration owners. It's baked into how you get paid.

The industry's default overhead-and-profit convention — the famous "ten and ten" — is 10% overhead plus 10% profit, applied as a 20% markup on job cost. As Restoration & Remediation Magazine spells it out, "the 20% markup factor for overhead and profit, commonly known as the '10 & 10' O&P." So every time you accept ten-and-ten and think of it as a 20% cushion, you're doing exactly the thing above: you're booking a 16.7% margin and calling it 20%. On a $100,000 job cost, ten-and-ten bills $120,000 — and $20,000 of gross profit on a $120,000 sale is 16.7%, not 20%. The same R&R piece makes the point directly: to truly clear that spread, a $100 cost has to be charged at $125, not $120.

Then it compounds twice over. First, ten-and-ten was never generous to begin with — that same industry analysis found a mid-size firm's real overhead ran over 43% of sales, not 10%, so the "overhead" half of the markup often doesn't even cover the overhead. Second, Xactimate builds your estimate line by line across hundreds of items, and a costing convention applied hundreds of times a year turns a rounding error into a budget. A point or two of margin you never realized you were giving away, multiplied across every job on the board, is the difference between a healthy year and a thin one.

Four moves that close the gap

None of this requires charging more than the work is worth. It requires charging what you think you're charging.

1. Decide in margin, then convert to markup. Pick the margin you need to keep — the percentage of the sale — and back into the markup that produces it. Twenty percent margin means a 25% markup, not 20%. Do the conversion once and tape it to the wall.
2. Know your true burdened cost first. A markup on an understated cost is a discount you didn't mean to give. Fully burdened labor, equipment, vehicles, insurance, and real overhead go into the "cost" before any markup — otherwise you're marking up a fiction.
3. Stop treating ten-and-ten as your margin. It's a starting point set by the carrier, not a law of nature, and it's a 16.7% margin before your real overhead eats into it. Where the scope justifies more, supplement and document for it rather than absorbing the difference.
4. Check margin per job on the actuals, not the estimate. The estimate is what you hoped; job costing is what happened. If your booked margin keeps landing below the number you priced, the markup-versus-margin gap is usually hiding in the difference.

The freeing part is that this one is pure arithmetic — no negotiation, no new software, no harder-working crew. Fix the formula and every estimate you write from here forward keeps the points you meant to keep.

That, honestly, is a lot of what a fractional CFO does for a restoration shop: make sure the number you priced and the number you bank stop being two different things. If you're not sure whether your pricing is built on markup or margin, that's worth a conversation — it's usually the fastest profit you'll find all year.

General guidance for restoration and reconstruction owners — not a substitute for advice tailored to your company's numbers.

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