What does 'markup' refer to in construction budgeting?

In construction budgeting, 'markup' refers to the percentage added to the cost of materials and labor. It serves as a mechanism for calculating the final selling price on a project by including not just the direct costs, but also covering overhead and profit margins. This helps ensure that all expenses are accounted for and that the contractor can sustain their business while still delivering quality work.

When a contractor determines the markup percentage, it is typically based on various factors including project risks, market conditions, and desired profit margins. By applying this markup to the total of the direct costs (materials and labor), the contractor can present a comprehensive budget that reflects the true cost of the project.

Understanding markup is vital for both budgeting and pricing strategies in construction, allowing contractors to ensure they remain profitable while meeting the client's needs.