Profit margin is a measure of profitability, calculated as profit expressed as a percentage of revenue (turnover).
In construction it is important not to confuse margin with markup. Markup is profit expressed as a percentage of cost, while margin is profit expressed as a percentage of the selling price. For example, if work costs £100,000 and is sold for £110,000, the markup is 10% but the margin is about 9.1%. Contractors typically track:
- gross margin, the difference between the value earned on a project and its direct cost
- net margin, the profit left after head office overheads and other business costs have been deducted
Margins in UK contracting are often thin, so accurate cost value reconciliation (CVR) and tight control of change are essential to protect them.
Related terms: profit, markup, overheads, cost value reconciliation.
