Gross profit is a dollar amount; gross margin is a percentage
Gross profit equals selling price minus direct job costs. Gross margin equals gross profit divided by selling price. Direct costs normally include job labor, materials, subcontractors, and project equipment, using a consistent accounting policy. Gross profit still has to support company overhead before it becomes net company profit. Changing which costs you call direct changes the reported margin, so compare jobs using the same cost basis.
Markup divides by cost, not selling price
Markup is the amount added to cost divided by that cost. A $10,000 job with 20% markup sells for $12,000. The $2,000 gross profit is 20% of cost but only 16.67% of the $12,000 selling price. Calling that a 20% margin would overstate what the price actually produces. Whenever someone asks for a percentage, clarify whether the denominator is cost or revenue.
Worked example: price for a 25% gross margin
For $10,000 direct cost and a 25% target gross margin, price = cost ÷ (1 − margin) = $10,000 ÷ 0.75 = $13,333.33. Gross profit is $3,333.33. The equivalent markup is margin ÷ (1 − margin) = 0.25 ÷ 0.75 = 33.33%. A 25% markup would instead sell for $12,500 and leave a 20% gross margin. Round currency at the final pricing step and check the resulting margin.
Keep overhead and net profit visible
Suppose a $13,333.33 job has $10,000 direct cost and is allocated $2,000 of company overhead. Gross profit is $3,333.33; profit after that overhead is $1,333.33 before other company expenses and income taxes. Do not call the entire gross-profit amount company profit. If overhead is already included in your cost input, label the resulting margin accordingly instead of comparing it with a direct-cost-only gross margin.
Check margin as costs and scope change
A fixed selling price can produce a lower margin when labor hours, material prices, waste, or subcontractor costs rise. Update forecast-to-complete costs during the job and compare actual results afterward. Price approved scope changes using a stated, consistent method. The target margin should come from your business costs and objectives, not an assumed universal contractor benchmark.