Ask ten contractors in Accra what margin they work on and most will say fifteen or twenty percent. Ask them how they arrive at it and nearly all describe the same method: work out the cost, add twenty percent, send the quote. Those two statements cannot both be true, and the gap between them is where a lot of small construction businesses quietly lose money.
The arithmetic, once, properly
Markup is calculated on cost. Margin is calculated on the selling price. They use the same two numbers and produce different answers.
markup % = (price − cost) ÷ cost × 100 margin % = (price − cost) ÷ price × 100
Take a job that costs you GHS 400,000 to build. Add a 20% markup and you quote GHS 480,000. Your profit is GHS 80,000 — but as a share of the money the client actually pays you, that is 16.7%, not 20%.
| Markup applied | Cost | Quoted price | Profit | Actual margin |
|---|---|---|---|---|
| 10% | GHS 400,000 | GHS 440,000 | GHS 40,000 | 9.1% |
| 15% | GHS 400,000 | GHS 460,000 | GHS 60,000 | 13.0% |
| 20% | GHS 400,000 | GHS 480,000 | GHS 80,000 | 16.7% |
| 25% | GHS 400,000 | GHS 500,000 | GHS 100,000 | 20.0% |
| 33.3% | GHS 400,000 | GHS 533,333 | GHS 133,333 | 25.0% |
Read the last row again. To earn a genuine 25% margin you must add a third onto your cost. Contractors who add 25% and believe they are earning 25% are short by roughly a fifth of their expected profit on every job they win.
The conversion, if you want a specific margin
required markup % = margin % ÷ (100 − margin %) × 100 for 20% margin: 20 ÷ 80 × 100 = 25% markup for 25% margin: 25 ÷ 75 × 100 = 33.3% markup
Where the rest of the money goes
The markup gap is only the first leak. The second is that most estimates price the job but not the business. Site cost is what the work consumes; overhead is what the company consumes while the work happens — the office, the pickup, fuel to and from site, the phone credit, the person who chases invoices, the months when nothing is running.
If your overhead is GHS 25,000 a month and you deliver GHS 1.5m of work a year, overhead is about 20% of turnover. A 20% markup with no separate overhead line does not leave you with profit. It leaves you with roughly nothing, and you find out in December.
direct cost materials + labour + equipment + subcontractors + overhead recovery of running the business + contingency for what site will find + profit what the business earns − discount what you gave away = quoted price
A worked example on a real shape of job
A four-bedroom residence at shell-and-core, priced from a bill you already have:
| Line | Amount | Basis |
|---|---|---|
| Materials | GHS 280,400 | priced from your own supplier rates |
| Labour | GHS 126,200 | trade rates × measured quantities |
| Equipment | GHS 34,500 | mixer, vibrator, scaffolding, haulage |
| Subcontractors | GHS 48,000 | electrical and plumbing first fix |
| Direct cost | GHS 489,100 | sum of the above |
| Overhead at 8% | GHS 39,128 | recovery of company running cost |
| Contingency at 3% | GHS 14,673 | site risk, not profit |
| Profit | GHS 80,327 | what the business earns |
| Quoted price | GHS 623,228 | |
| Gross margin | 19.5% | profit ÷ price |
Notice that contingency sits with cost, not with profit. If site conditions are kind and you do not spend it, it becomes profit at the end — but it was never yours to spend at the quoting stage.
What to change on Monday
- 1.Decide the margin you need, then convert it to the markup you must apply. Write both numbers down.
- 2.Put overhead on its own line. If you have never measured it, take last year’s office cost and divide by last year’s turnover.
- 3.Keep contingency separate from profit, and separate from your markup.
- 4.Check the margin on the finished number before the quote leaves your office, not after the job ends.
None of this makes you more expensive than your competitors. It makes you accurate about what you are already charging — which is the only position from which you can safely decide to discount.