Markup Gross Profit

Overview

Engineering reference data for Markup Gross Profit in economics.

Key Formulas

Present Value

$PV = \frac{FV}{(1+r)^n}$

Discount a future value to present.

Net Present Value

$NPV = \sum_{t=0}^{n} \frac{C_t}{(1+r)^t}$

Sum of discounted cash flows.

Compound Interest

$FV = PV(1+r)^n$

Future value with compound interest.

Variables

Markup vs. Gross Profit

The key distinction between markup and gross profit percentage lies in their calculation basis:

Important: A 25% markup does not equal 25% gross profit. As shown in the examples, a 25% markup on cost yields only 20% gross profit on the contract price.

Overhead Markup Calculation

When incorporating project and company overhead into pricing, use the overhead markup factor:

$\text{Overhead Markup Factor} = \frac{100\%}{100\% - \text{Total Overhead}\%}$

Where:

• Project Overhead — costs to run a specific job (project manager, transport, site facilities)
• Company Overhead — costs to run the business (management, administration, bookkeeping)
• Total Overhead — sum of project and company overhead percentages

Practical Examples

Example: Markup to Contract Price

Given a project cost of $200,000 and required 25% markup:

$\text{Contract Price} = 200{,}000 \times \frac{25\% + 100\%}{100\%} = 200{,}000 \times 1.25 = 250{,}000$

Example: Gross Profit from Contract Price

$\text{Gross Profit \%} = \frac{250{,}000 - 200{,}000}{250{,}000} \times 100\% = 20\%$

Example: Overhead-Based Pricing

With 10% project overhead and 10% company overhead (20% total):

$\text{Overhead Markup Factor} = \frac{100\%}{100\% - 20\%} = \frac{100\%}{80\%} = 1.25$

$\text{Contract Price} = 200{,}000 \times 1.25 = 250{,}000$

References

• Original Source