# How to Calculate Markup Rate as a Percentage of Labor Costs

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.

## Step 1.

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.

## Step 2.

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.

## Step 3.

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.

## Step 4.

Deduct the labor cost from the selling price. Following the example above, this would mean subtracting $800 from $1,200, which is $400.

## Step 5.

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.