A 20% markup is not a 20% margin.

Educational content, not legal or procurement advice, and not an endorsement by any government agency. Solicitation documents and their amendments control.

Follow the numbers

Assume a fictional project has $80,000 in fully allocated planning costs. Adding 20% of cost produces a $96,000 price. The difference is $16,000, which is 16.67% of the selling price—not 20%.

For a 20% planning margin on that same cost base: price = $80,000 ÷ (1 − 0.20) = $100,000. The difference is $20,000, or 20% of price.

Check what “cost” includes

List direct delivery labor, materials or subcontractors, applicable overhead, administration and project-specific obligations. Avoid counting the same expense twice. Identify uncertain assumptions separately. Actual accounting treatment and procurement pricing requirements depend on the engagement; this example does not establish allowable costs or a government-approved profit.

Use it before quoting

Recalculate after changing scope, staffing, supplier quotes or delivery timing. A mathematically correct margin does not prove that the price is competitive or the job is feasible.