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The average GC applies a 15–20% markup and walks away with 3–5% net profit. The gap between those two numbers — markup and actual margin — is where most construction businesses bleed out.
Markup is not margin. Overhead is not profit. A GC fee is not a markup. These distinctions cost contractors hundreds of thousands of dollars over a career because the math is applied wrong from the first estimate.
Markup vs. Margin: The Formula Most Contractors Get Wrong
Markup = Profit ÷ Cost × 100 Margin = Profit ÷ Revenue × 100
A 20% markup produces a 16.7% margin — not 20%.
Markup needed to achieve target margin:
|
Target Net Margin |
Required Markup on Cost |
|
10% |
11.1% |
|
15% |
17.6% |
|
20% |
25.0% |
|
25% |
33.3% |
|
30% |
42.9% |
|
35% |
53.8% |
Formula: Markup % = Margin % ÷ (1 − Margin %)
What the Markup Must Cover
Markup covers two things beyond direct costs: overhead (fixed costs of running the business) and profit.
Overhead rate = Annual Overhead ÷ Annual Revenue
Example — $100,000 direct cost job with 20% overhead and 10% target profit:
|
Item |
Amount |
|
Direct costs |
$100,000 |
|
Overhead recovery |
$25,000 |
|
Target profit |
$12,500 |
|
Job price |
$137,500 |
|
Effective markup |
37.5% |
Standard GC Markup Rates by Trade
[SVG chart: Horizontal bars — Self-performed labor 35–50%, Subcontractor work 10–15%, GC-supplied materials 15–20%, Equipment rental 10–15%, Residential remodel overall 20–30%, Custom home build 15–25%, Commercial TI 10–20%, Specialty trades self-perform 35–60%]
Why self-performed labor carries higher markup: your markup must cover labor burden, tools, supervision, and profit. Subs already have their overhead built in — you only mark up for coordination and GC overhead.
GC Fee Structures
Lump Sum
Markup baked in, invisible to owner. Standard on competitive bid work. Full upside and downside.
Cost-Plus with GC Fee
GC fee benchmarks:
|
Project Size |
Typical GC Fee |
|
Under $500K |
15–20% of direct costs |
|
$500K – $2M |
10–15% of direct costs |
|
$2M – $10M |
8–12% of direct costs |
|
$10M+ |
5–8% of direct costs |
GC fee covers overhead AND profit. A 12% fee with 18% overhead = you lose money.
Minimum GC Fee = Overhead Rate ÷ (1 − Overhead Rate) + Target Profit %
GMP (Guaranteed Maximum Price)
Owner pays actuals up to ceiling. Add 5–10% contingency when setting the GMP.
Margin by Phase — Where Money Is Made and Lost
[SVG chart: Grouped bars — estimated 20% vs actual margin by phase. Framing and finish beat target. MEP rough-in (10%) and closeout (8%) consistently underperform.]
Fix: Add 5% contingency to MEP and closeout phases specifically. Track actuals by phase on every job.
How to Calculate Your Actual Markup Requirement
Step 1 — Total all annual overhead costs ÷ annual revenue = overhead rate % Step 2 — Set target net profit margin % Step 3 — Apply formula:
Markup = (Overhead + Profit) ÷ (1 − Overhead − Profit)
Example: 20% overhead + 10% profit → (0.30) ÷ (0.70) = 42.9% markup required
Most contractors are shocked. If your overhead is 20% and you want 10% net profit, you need a 43% markup — not 20%, not 30%.
Markup Quick Reference
|
Situation |
Markup to Apply |
|
Self-performed labor |
35–50% on labor cost |
|
Subcontractor invoices |
10–15% on sub cost |
|
GC-supplied materials |
15–20% on material cost |
|
Equipment rental (pass-through) |
10–15% |
|
T&M work (emergency, extras) |
35–50% on all costs |
|
Cost-plus GC fee (under $500K) |
15–20% of total direct costs |
|
Cost-plus GC fee ($500K–$2M) |
10–15% of total direct costs |
Common Markup Mistakes
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- Applying margin % as markup % — always use the conversion formula
- Leaving overhead costs out of the overhead rate — owner salary, estimating time, and unbilled hours are overhead
- One blended markup for everything — subs, self-perform, and materials deserve different rates
- No warranty reserve — add 1% of revenue as warranty reserve to your markup
Relevant Article:Construction Overhead and Profit: How to Calculate Your Markup (2026
Related Resources
