Materials markup that covers handling and waste
Ordering, collecting, returns, offcuts and cash tied up all cost you. Work out handling as a share of purchases: in our example 12.2%, so an 18% markup leaves profit.
- Your own markup figure, worked out from a year of costs
- A sliding scale for small and large orders
- Whether the customer should see the markup at all
By WhizQuote Editorial · 9 minute read
A materials markup is the percentage added to your cost of materials to cover handling, waste, returns and profit. Rather than copy someone else’s number, work out what handling costs you in a year as a share of what you buy. In our example $21,948 on $180,000 of purchases is 12.2%, so an 18% markup covers it with room for profit.
What a materials markup pays for
A materials markup is the amount you add to the cost of materials to pay for the work of supplying them and to earn a profit on them. Buying is never free: someone prices the order, drives to the supplier, checks the delivery, stores the spare stock and deals with the return when the wrong fitting turns up.
- Time spent pricing and placing orders, in the office or in your evenings.
- Supplier runs: fuel, vehicle wear and paid driving time.
- Returns, restocking fees and deliveries that arrive short or damaged.
- Offcuts, breakage and leftover stock that never reaches another job.
- Shelf space in the shop, yard or van.
- Cash tied up between paying the supplier and being paid by the customer.
- Callbacks when a product fails and you replace it under your workmanship warranty.
With no markup, every one of those costs comes out of your labor rate or your profit. That is the reason for a contractor markup on materials in the first place: the cost price on the receipt is rarely what the materials really cost you to supply.
How much to mark up materials: work it out from your own costs
The honest answer to how much to mark up materials is enough to cover what handling them costs you, plus the profit you want on them. Total a year of handling costs, divide by a year of materials purchases, and you have your break even markup. Profit goes on top of that.
| Handling cost | How it is worked out | Per year |
|---|---|---|
| Ordering and collecting time | 6 hrs a week × 48 weeks × $46.00 | $13,248 |
| Supplier runs (fuel and vehicle wear) | From your mileage log | $3,600 |
| Returns, restocking and unbilled waste | From supplier statements | $2,700 |
| Storage share of shop rent | 20% of $12,000 | $2,400 |
| Total handling cost | $21,948 | |
| Materials bought in the year | From your books | $180,000 |
| Break even markup | $21,948 ÷ $180,000 | 12.2% |
In this example 12.2% only breaks even. Adding about six points for profit and rounding gives a working figure of 18%. Your result will be different: a business that takes large delivered orders has far lower handling than one that drives to the supplier every morning.
One caution. If shop rent or vehicle costs already sit in your overhead rate, do not count the same dollars again here. Move them to one place or the other, then follow the method in how to calculate overhead for the rest.
Apply the markup line by line
You can apply the markup to each material line or to the materials subtotal, and the total comes out the same. Line by line is clearer when different items carry different rates. Here is the materials list for tiling a 60 ft² bathroom floor with an 18% markup.
| Item | Qty | Unit cost | Cost | Price at 18% |
|---|---|---|---|---|
| Porcelain floor tile (60 ft² plus 10% waste) | 66 ft² | $4.80 | $316.80 | $373.82 |
| Thinset mortar, 50 lb | 4 bags | $24.00 | $96.00 | $113.28 |
| Grout | 2 bags | $22.00 | $44.00 | $51.92 |
| Cement backer board, 3 × 5 ft | 5 sheets | $16.00 | $80.00 | $94.40 |
| Board screws and mesh tape | 1 lot | $28.00 | $28.00 | $33.04 |
| Transition strip | 1 each | $35.00 | $35.00 | $41.30 |
| Total | $599.80 | $707.76 |
The markup adds $107.96. As a share of the $707.76 the customer pays for materials, that is a 15.3% margin, which is why an 18% markup never means 18% profit. The markup vs margin guide explains the gap, and the markup calculator converts any rate in either direction.
Use a sliding scale for small and large orders
One flat percentage overcharges on big orders and undercharges on small ones. A $12 box of fittings can take as long to buy as a $1,200 tile order, so small purchases justify a higher rate and large delivered orders a lower one. Set the bands once and apply them to every quote.
| Material cost per line | Example markup | Sample cost | Price | Margin |
|---|---|---|---|---|
| Under $500 | 25% | $180.00 | $225.00 | 20.0% |
| $500 to $5,000 | 15% | $2,400.00 | $2,760.00 | 13.0% |
| Over $5,000 | 10% | $9,000.00 | $9,900.00 | 9.1% |
These bands are an example policy, not an industry standard. Build yours from the handling cost math above, then check that the blended rate over a typical year still lands at or above break even plus your profit.
Special order items deserve their own rule. Custom cabinets, made to measure glass or imported fixtures usually cannot go back to the supplier, so price them at your top band and collect a deposit before you order. The guide to contractor deposits shows how to size one.
Should the customer see your contractor markup on materials?
On a fixed price quote you are selling a finished result, so the markup can sit inside the unit prices and the customer sees one price per line. On cost plus or time and materials work it is different: the customer pays your actual costs, so the markup percentage belongs in the written terms.
Build it into unit prices
- Fixed price and lump sum quotes
- Customers comparing totals from several contractors
- Lines where you want one clean rate per unit
State it as a percentage
- Cost plus and time and materials contracts
- Allowances for items the customer picks later
- Change orders priced at cost plus a stated rate
Whichever you choose, be consistent within one quote. See fixed price vs time and materials for when each contract type fits.
When the customer supplies the materials
When a customer buys their own materials you lose the markup and inherit their mistakes: short quantities, missing trims, the wrong grade and boxes damaged before you arrive. Say on the quote how you handle it, so nobody argues on the morning the tile turns out to be the wrong size.
- Warrant your workmanship, not the products the customer bought.
- Check quantities and condition a few days before the start date.
- Charge for return trips caused by missing or incorrect items.
- Price those jobs at a slightly higher labor rate, or add a handling line, since the margin on materials is gone.
Protect the markup when supplier prices move
A markup only protects you when the cost underneath it is current. Supplier prices change, sometimes between the day you quote and the day you order, so keep the validity period short on material-heavy quotes and say in writing what happens if prices rise before the materials are bought.
- Give a clear valid until date, usually 14 or 30 days. The guide to quote validity covers how to choose.
- Re-price any quote accepted after it has expired.
- Order as soon as the deposit arrives, and ask the supplier to hold the price until then.
- Name the brand and product on the quote so a substitution does not become an argument.
Add a Materials group with units such as ft² and each, then a Labor group. Subtotals and tax are worked out for you.
Materials markup mistakes to avoid
The usual faults are counting a cost twice, forgetting it altogether, or reading markup as margin. Each one either loses jobs on price or loses money on every invoice, and most of them disappear once you do the handling cost calculation properly, once a year, from your own books.
- Counting vehicle or storage costs in both overhead and markup.
- Marking up last season’s prices instead of today’s.
- Using the same rate on a $10 part and a $10,000 order.
- Expecting an 18% markup to produce 18% profit.
- Leaving customer-supplied items without any exclusion wording.
- Pricing change orders at cost. The guide to variations and change orders covers how to price extras.
Materials markup questions
What is a typical materials markup for contractors?
We do not publish a typical figure, because it depends on how you buy, how much handling you do and what your overhead already covers. Work out your own: total a year of handling costs, divide by a year of materials purchases, and add the profit you want on top. The example in this guide lands on 18%.
How do I calculate a materials markup?
Multiply the cost by 1 plus the markup. A $250 item with a 20% markup is $250 × 1.20 = $300. To find the markup you used on an existing price, subtract the cost from the price and divide by the cost: ($300 minus $250) ÷ $250 = 20%.
Do I have to tell the customer my markup?
On a fixed price quote you are offering a price for the job, so the markup can stay inside your unit prices. If your agreement says materials at cost plus a stated percentage, charge exactly that percentage and keep the receipts, because the customer is entitled to check what was agreed.
Should I mark up allowance items?
Decide and say so on the quote. An allowance is a budget for items the customer chooses later, such as $1,500 for light fittings. Some contractors add their markup when the actual item is bought, so a $1,500 choice with 10% becomes $1,650. Write that rule next to the allowance so the final bill is no surprise.
Is markup on materials the same as margin?
No. Markup is a percentage of cost and margin is a percentage of the selling price. An 18% markup on $599.80 of tile materials adds $107.96, which is a 15.3% margin on the $707.76 price. Margin is always the smaller figure for the same dollars.
Should I mark up subcontractor costs as well?
Usually, yes. Booking, coordinating and checking a subcontractor’s work takes your time, and you carry the responsibility to the customer if their work is faulty. Treat subcontractor invoices like materials: add a stated percentage, or build it into the line price on a fixed quote.