Estimating

Markup vs gross margin for paving estimates

By Pave Measure · 9 September 2026 · 2 min read

Markup measures the addition relative to cost. Gross margin measures the difference between selling price and cost relative to the selling price. Entering the same percentage for both produces different prices.

The two formulas

Price with markup = cost × (1 + markup ÷ 100)
Price for target margin = cost ÷ (1 − margin ÷ 100)

For these examples, cost means the complete cost basis you have chosen for the estimate, and price is before tax. If your cost basis omits labour or other costs, the apparent margin will not describe the profitability of the complete job.

Compare the same percentage

On a £3,000 cost basis	Price	Price less cost
20% markup	£3,600	£600
20% margin	£3,750	£750
25% markup	£3,750	£750
25% margin	£4,000	£1,000

For the £3,750 price, the £750 difference is 25% of the £3,000 cost but 20% of the £3,750 selling price. That is why 25% markup equals 20% margin in this example.

Check the result backwards

Subtract the cost from your proposed price. Divide that difference by the cost to find the markup, or by the price to find the margin. This is a useful check when comparing an older spreadsheet, a supplier quote or another estimator’s terminology.

A target margin must be below 100% for this formula with a positive cost. At 100%, the denominator is zero. A percentage that cannot produce a sensible price should be corrected, not silently rounded or replaced.

Do not confuse the difference with take-home profit

The price-minus-cost figure depends on what you have included in cost. If overhead is outside that basis, it still has to be paid from the difference. If overhead is allocated inside it, document the allocation method so future comparisons use the same approach. This guide explains arithmetic, not a recommended margin for your business.

Use it in your estimate

Pave Measure lets you select markup or gross margin. Start with the complete cost schedule, choose the intended method and inspect the customer total before saving. If you change the price later, repeat the calculation rather than assuming a discount has reduced your margin by the same percentage.

Return to pricing a complete paving job to check the costs that sit beneath the percentage.

Compare markup and margin prices using your own inputs in the free calculator.