Setting prices is one of the most important decisions you’ll make as a field service business owner. Charge too little, and you’ll work yourself into the ground without turning a profit. Charge too much, and customers will call your competitors instead.

Markup is the bridge between covering your costs and actually making money. It’s the percentage you add on top of what a job costs you, and it determines whether your business thrives or just survives.

The challenge is that most field service business owners never learned how to calculate markup properly. Many started their companies because they’re skilled HVAC technicians, plumbers, electricians, or landscapers, not because they have accounting degrees. So pricing becomes guesswork.

That approach works until it doesn’t. Rising material costs, unexpected overhead, and underestimated labor hours can quietly erode your margins. Before you know it, you’re busy but broke.

This guide will show you exactly how markup works, walk you through the formula, share typical percentages by trade, and help you recognize when your pricing needs adjustment.

What Is Markup and How Is It Different From Profit Margin?

Understanding markup starts with knowing what it actually measures and why it’s not the same thing as profit margin. These two terms get confused constantly, and mixing them up can cost you thousands of dollars in mispriced jobs.

How Does Markup Actually Work for Field Service Businesses?

Markup is the amount you charge above your costs to make a profit. It can be expressed as a dollar amount or a percentage. For field service businesses, markup gets applied to materials, labor, and overhead to determine your final price to the customer.

Here’s a simple example. Say you’re an HVAC contractor and you buy a capacitor from your supplier for $25. You charge your customer $62.50 for that part. The $37.50 difference is your markup, which works out to 150% of your cost.

The same logic applies to labor and services. If it costs you $110 in labor and materials to complete a plumbing repair and you want a 40% markup, you’d charge $154. That extra $44 is what keeps your business running after expenses are paid.

Why Is Confusing Markup With Margin So Dangerous?

Markup and profit margin both involve your costs and selling price, but they measure different things. Markup is calculated as a percentage of your cost. Margin is calculated as a percentage of your selling price.

Consider a job where your costs are $70 and you sell the service for $100. Your markup is 42.9% because you added $30 on top of a $70 cost. But your profit margin is only 30% because that $30 profit represents 30% of the $100 sale.

The danger comes when you think in margin terms but calculate using markup formulas. If you want a 30% profit margin and mistakenly apply a 30% markup, you’ll end up with less profit than expected. Over hundreds of jobs, that math error can mean the difference between a profitable year and a struggling one.

How Much Markup Should You Charge for Your Field Service Business?

Once you understand what markup measures, the next step is learning how to calculate it correctly. The formula itself is straightforward, but getting accurate inputs requires knowing which costs to include.

What Formula Should You Use to Calculate Markup?

The basic markup formula is: Selling Price = Total Costs + (Total Costs × Markup Percentage). You can also work backward to find your markup percentage by dividing gross profit by total cost and multiplying by 100.

Let’s say you want to price a plumbing repair. Your total costs, including labor, materials, and allocated overhead, come to $200. You want a 50% markup to hit your profit goals. Using the formula: $200 + ($200 × 0.50) = $300. You’d charge the customer $300 for that job.

To find markup on an existing price, subtract your cost from the selling price to get gross profit, then divide by cost. If you charged $300 and your costs were $200, your gross profit is $100. Divide $100 by $200 and multiply by 100 to get a 50% markup.

Running these calculations before every job prevents underpricing. Field service management platforms let you build markup into your estimates automatically, so you’re not doing math on every quote.

What Costs Need to Be Included in Your Markup?

Your markup only works if your cost figure is accurate. Total cost includes three categories: labor, materials, and overhead. Missing any of these means your markup won’t generate the profit you expect.

Labor costs include wages for technicians or subcontractors working on the job, plus payroll taxes, workers’ compensation, and benefits. If you’re the one doing the work, your time has value too. Many business owners forget to pay themselves a reasonable hourly rate before calculating markup.

Materials are the supplies needed for each specific job, from replacement parts to refrigerant. Track actual costs, not estimates, and update pricing when suppliers raise their rates.

Overhead covers everything required to run your business that isn’t tied to a specific job: vehicle payments, insurance, office rent, software subscriptions, advertising, and administrative costs. Calculate your monthly overhead, divide by billable hours, and add that hourly overhead rate to each job’s cost.

What Markup Percentages Do Field Service Businesses Typically Use?

Knowing the formula is only half the equation. You also need context for what markup percentages are reasonable in your trade and market.

What Are Typical Markup Ranges by Trade?

Markup percentages vary by trade, but most field service businesses operate in the 25% to 100% range. Some specialized services command even higher markups based on expertise or urgency.

HVAC businesses often mark up materials by 25% to 50% and may apply 100% or higher markup on spare parts. Labor markups typically fall in the 30% to 50% range. Plumbing contractors use similar ranges, with emergency calls commanding premium pricing. Electrical contractors commonly apply 30% to 50% markup on materials and services.

Landscaping and lawn care services typically use 50% to 65% markup on materials and labor combined. Roofing contractors often work with 20% to 40% markup depending on project size and complexity.

These ranges exist because cost structures within trades tend to be similar. Businesses face comparable material costs, labor markets, and overhead requirements. Straying too far from industry norms usually signals either underpricing or a premium positioning that requires justification.

How Should Your Market Affect Your Markup Decision?

Industry averages provide a starting point, but your specific market conditions should influence where you land within that range. Local competition, customer expectations, and your business’s reputation all affect what markup the market will bear.

Research what competitors in your area charge for similar services. If you’re significantly cheaper, you might be underpricing. If you’re much higher, you need clear differentiation to justify the premium.

Your customer base matters too. Residential customers often expect lower prices than commercial clients. Emergency or after-hours work commands higher markup because customers value speed and availability. Specialized skills that few competitors offer allow for premium pricing.

When Should You Adjust Your Markup Strategy?

Setting markup isn’t a one-time decision. Material costs change, labor markets shift, and your business evolves. Knowing when and how to adjust keeps your pricing aligned with reality.

What Signs Tell You Your Markup Is Too Low?

The clearest sign of underpricing is being constantly busy but not making money. If your calendar is full but your bank account isn’t growing, your markup probably isn’t covering true costs.

Watch for these warning signals: you’re unable to afford necessary equipment upgrades, you can’t pay yourself a reasonable salary, you’re dipping into savings during slow periods, or you feel resentful about the amount of work you’re doing relative to what you’re earning.

Another indicator is winning nearly every bid. A healthy close rate for field service businesses is typically 40% to 60%. If you’re closing 80% or 90% of quotes, customers are saying yes because you’re the cheapest option, not because you’re providing the best value.

How Often Should You Review Your Pricing?

At minimum, review your markup and pricing quarterly. This frequency catches cost increases before they erode margins too severely. Many successful field service businesses review pricing monthly and adjust immediately when costs change.

Track material costs from suppliers and update your pricing whenever they increase. Don’t absorb cost increases hoping they’re temporary. Monitor your labor costs annually, especially if you’ve given raises or added benefits.

Field service management software makes this easier. FieldServ Ai, available on the App Store and Google Play, lets you track job costs, store pricing data, and identify which services generate the best margins. When you have clear data, pricing decisions become straightforward instead of stressful.

The Bottom Line

Markup determines whether your field service business makes money or just stays busy. By calculating your true costs, applying appropriate markup percentages, and reviewing pricing regularly, you ensure every job contributes to your bottom line.

Start with the formula, research your trade’s typical ranges, and adjust for your specific market. Most importantly, don’t let pricing remain a guessing game. Download FieldServ Ai from the App Store or Google Play to track job profitability and build markup into every estimate automatically.

Frequently Asked Questions

What is a good markup percentage for a field service business? Most field service businesses use markup percentages between 25% and 100% depending on their trade. HVAC and plumbing companies typically apply 25% to 50% markup on materials and higher percentages on labor. The right percentage depends on your costs, competition, and profit goals.

How is markup different from profit margin? Markup is calculated as a percentage of your cost, while profit margin is calculated as a percentage of your selling price. A 50% markup on a $100 cost gives you a $150 price, but your profit margin would be 33% because the $50 profit represents one-third of the $150 sale.

What costs should I include when calculating markup? Include labor costs with taxes and benefits, material costs for the specific job, and overhead expenses allocated per job. Overhead includes insurance, vehicle costs, software, and administrative expenses. Missing any category means your markup won’t generate expected profit.

How often should I adjust my markup? Review your markup at least quarterly to catch rising costs before they erode margins. Update pricing immediately when suppliers raise material costs. Businesses that track job profitability monthly make better pricing decisions than those who set prices once and forget them.

Why am I busy but not making money? This usually signals that markup is too low to cover true costs. You might be underestimating labor time, forgetting overhead allocation, or absorbing material cost increases. Review your actual job costs versus estimates and adjust pricing accordingly.

What markup do HVAC companies typically use? HVAC businesses commonly apply 25% to 50% markup on equipment and materials, with 100% or higher markup on spare parts. Labor and service markups vary by market but generally fall in the 30% to 50% range. Emergency calls and specialized work command higher markups.

Should I charge the same markup on every job? Not necessarily. Different services, customer types, and job sizes may warrant different markup percentages. Emergency work often commands higher markup than scheduled maintenance. However, maintain consistency within categories to simplify quoting and ensure profitability.

How do I know if my prices are too high? If you’re losing most bids and customers frequently mention price as the reason, you may be above market. A healthy close rate is 40% to 60%. Research competitor pricing in your area to calibrate, but remember that losing some bids on price is normal.