Two familiar percentages answer different questions. A simple check can keep a trade quote honest.
A contractor adds 20 per cent to a cost and describes the result as a 20 per cent margin. The arithmetic sounds close enough to pass unnoticed. It is not the same calculation, and repeated across a busy workload the misunderstanding can distort expectations about earnings.
Markup measures the addition against cost. Margin measures the remaining amount against the selling price. Neither figure, on its own, tells you the final profit of the business.
Work through one quote
Take an illustrative NZ$10,000 cost, excluding GST. Adding a 20 per cent markup gives a selling price of NZ$12,000. The NZ$2,000 difference is 16.7 per cent of that selling price, rounded to one decimal place.
To produce a 20 per cent margin on the same stated cost, the selling price would be NZ$12,500: cost divided by 0.8. The NZ$2,500 difference is then 20 per cent of the selling price. These are examples, not recommended prices or industry targets.
The next question matters just as much: what has been included in the cost? A figure containing only materials and site wages will not describe the whole business. Estimating time, supervision, vehicles, software, insurance and other overheads still have to be recovered somewhere.
Make the quote sheet explain itself
Label the percentage in the estimating system. State whether the calculation uses direct job costs or a broader cost base, and whether GST is excluded. Avoid a single unlabeled box called “profit” that different staff interpret differently.
Check how discounts are handled too. A reduction in the selling price comes out of the amount left after costs; it does not automatically reduce material or labour bills by the same percentage.
For an existing business, review a completed job against the original estimate. Was the shortfall caused by the percentage calculation, missing scope, extra hours or a cost increase? Those are different problems and need different responses.
Business.govt.nz’s financial modelling resources encourage owners to understand their underlying figures before relying on forecasts. A quoting formula deserves the same attention. The objective is not to chase a universal margin, but to know what the chosen price is expected to cover—and whether the completed work actually did so.