The markup rate of a job is the percentage its price is increased to cover overhead costs and provide the company with a profit. For example, if you estimate the cost of a job to be $1,000, and you apply a 20 percent markup, the final price will be $1,200. For jobs in which the main cost is labor, such as a massage therapist's services, labor is sometimes used as a basis to calculate the final job cost by adding a standard markup rate to the cost of labor.
Estimate the labor cost for the job. For instance, if you have to employ a worker for 40 hours at $20 an hour to finish the job, your labor cost would be $800.
Add the total cost of the job. This includes wages, materials and overhead costs such as office leases, transportation and insurance fees associated with the job. Even labor-intensive jobs such as a teacher's training program have added expenses, such as travel, educational material, pens, paper and so on. This is the seller's or employer's cost.
Add the profit you want to make from the job. For instance, you could apply a 20 percent profit margin to the cost of the job. Added together, this is the selling price. For example, if the employer's cost for a job is $1,000 and you apply a 20 percent profit margin, the selling price will be $1,200.
Deduct the labor cost from the selling price. Following the example above, this would mean subtracting $800 from $1,200, which is $400.
Divide the result by the labor cost. If you are following this example, you would divide $400 by $800, which is 0.5 or 50 percent. This is your markup rate as a percentage of labor for this job. You can now apply the same markup rate to estimate the selling price of similar jobs by increasing the labor cost by 50 percent.
Tip
To calculate the selling cost of a job from your labor cost markup rate, add 1, or 100 percent, to your markup rate, and multiply by your labor cost. For example, if your labor cost is $800, and you are applying a 0.5 markup rate, multiply $800 by 1.5, which is $1,200.
