Builder margin and markup can be confusing for all including the builder who might be using software to calculate this and not know the real difference.
Typically contracts are written with the word margin which in many cases is 20%.
When an item costs $1,000 ex gst you might think this would mean the total is $1,200 with a 20% applied but that would mean the markup is 20%, not the margin. To calculate the margin its
cost of item / (1-%margin)
which in this case makes it 1000/(1-0.2)=$1,250. Adding GST would then = $1,375. If the builder needs to make a 20% profit margin then on $1200 the cost would need to be $960, and not $1,000.
To calculate what the builder will charge
| Cost ex GST | $1,000 | |
| Margin | 20% | |
| Total with margin | $1,250 (cost/(1-0.2) | |
| Total with margin * GST | $1,375 (above * 1.1) |
To calculate cost price from builders charge
| Builders variation | $1,375 | |
| Margin | 20% | |
| Total without GST | $1,250 (variation/1.1) | |
| Total cost | $1,000 (above*(1-0.2) |
To easily calculate this, you can use a factor of 1.375, including GST. $1,000 * 1.375 = $1,375