If you're a tradie running a business in New Zealand, you've probably used the word "markup" and "margin" interchangeably. Most tradies do. And if you're doing that, you might be accidentally destroying your profits.
Here's the hard truth: if you mark up materials by 42%, your true margin isn't 42%. It's closer to 30%. That difference — the gap between what you think you're making and what you're actually making — is one of the biggest profit leaks in the NZ trade sector.
With the April 2026 minimum wage increase to $23.95/hour and rising subcontractor rates, getting your pricing right isn't optional. It's survival.
Markup vs Margin: What's the Difference?
Markup is what you ADD to your costs to set the price.
Margin is what's LEFT after costs are deducted from revenue.
Let's use a real NZ example. Say you quote a plumbing job:
- Materials cost: $500
- Labour cost: $800
- Total cost: $1,300
You decide to apply a 40% markup:
- Selling price: $1,300 + (40% × $1,300) = $1,820
Now, what's your actual profit margin?
- Profit: $1,820 − $1,300 = $520
- Margin: $520 ÷ $1,820 = 28.6%
You thought you were making 40% profit. You're actually making 28.6%. That's a 12-percentage-point difference — and on bigger jobs, that error scales up fast.
Why This Matters for NZ Tradies
When you misunderstand markup, you systematically underprice jobs. Over a year, that compounds. If you're quoting 5–10 jobs per week, a 12% pricing gap means you're losing thousands in profit annually.
Worse, as your wage costs increase (thanks to that $23.95 minimum wage kicking in April 2026), you need higher margins to stay profitable. If you're already thinking you're at 40% margin when you're actually at 28%, you're in trouble when costs rise.
According to the IRD and business.govt.nz, NZ tradies with tight margins are especially vulnerable to cost shocks. The solution: stop using arbitrary markups. Use target margins instead.
How to Calculate Margin Correctly
Here's the formula you need to tattoo on your brain:
Required Markup % = (Target Margin ÷ (100 − Target Margin)) × 100
Let's say you want a 30% gross profit margin. What markup do you need?
- Markup = (30 ÷ 70) × 100 = 42.9%
So to achieve a 30% margin, you must mark up your costs by approximately 43%.
Here's a quick reference table for NZ tradies:
| Target Margin | Required Markup |
|---|---|
| 20% | 25% |
| 25% | 33% |
| 30% | 43% |
| 35% | 54% |
| 40% | 67% |
Print this. Bookmark it. Use it in every quote.
Don't Forget GST
In New Zealand, you charge 15% GST on most services. This adds a wrinkle to margin calculations.
If your job costs $1,300 and you want a 30% margin before GST, your pre-GST selling price is $1,857 (using the 43% markup). You then invoice $1,857 × 1.15 = $2,136 including GST.
But here's the important bit: that $1,857 is still your revenue for margin purposes. The GST is collected on behalf of the government — it's not your profit. So your actual margin is still:
- Margin: ($1,857 − $1,300) ÷ $1,857 = 30%
Some tradies confuse gross margin (before GST) with net revenue (after GST), and it throws off their entire pricing model. Keep it simple: calculate margins before GST is added.
What Margin Should You Target?
This depends on your trade, location, and business model. According to industry research, healthy NZ tradie businesses typically operate at:
- Sole traders with low overhead: 25–35% gross margin
- Small teams (2–4 people): 30–40% gross margin
- Larger operations with vehicles/equipment: 35–45% gross margin
Your margin must cover not just labour and materials, but also:
- Vehicle running costs and maintenance
- Equipment depreciation
- Insurance (public liability, professional indemnity)
- Rent or office space (if applicable)
- Phone, power, admin costs
- Contingency for unpaid invoices
- Reinvestment in training and tools
If you're hitting 25% margin and your overheads are 18%, you're left with 7% for profit, tax, and growth. That's thin. 30–35% margin is a safer target for most NZ tradies.
Track Your Actual Margins
The best way to stop margin leaks is to track actual job profitability. Use job management software like Tradify or Fastcrew (https://fastcrew.nz) to record actual labour hours and material costs against quoted jobs. This reveals where you're underestimating.
Many NZ tradies find they're consistently 5–15% off on labour estimates. Once you know your patterns, you can adjust future quotes and protect your margin.
Recalculate Your Rates for 2026
With the wage increase to $23.95/hour now in place, if you haven't adjusted your pricing since early 2026, it's overdue. A 2% wage bump might sound small, but if you pay 4–5 full-time tradies, that's real money.
Ask yourself:
- What's my actual margin on jobs right now? Use the margin formula above on your last 10 jobs.
- How much did my wage costs rise in April 2026? Calculate the cumulative impact across your team.
- Are my quotes accounting for this increase? If not, adjust your markup or hourly rates immediately.
Ready to Stop Losing Money?
If you've been using guesswork markup and haven't checked your actual margins in 6 months, you're almost certainly underpricing. Spend an afternoon with a spreadsheet, work out your target margin for your trade, and recalculate your pricing.
For help with job costing and quoting, check out our guide on what to include in a quote. And if you're tracking cash flow, our cash flow management guide walks you through the full picture.
Download our free NZ tradie templates at tradietools.nz/templates/ — including a markup/margin calculator that does all this math for you.
NZ Tradie Tools provides free calculators, templates and guides for New Zealand tradies. Visit tradietools.nz.