Materials markup: the number most trades guess

Ask ten trades what they mark materials up by and you get ten answers, most of them round numbers inherited from whoever trained them.

Most trades defend the number as a margin on the part. It is really paying for the hours around the part, and once you see it that way the right figure stops being a guess.

What the markup is actually buying

Between choosing a part and installing it, somebody does a run of unbilled work.

• Sourcing. Finding a part that fits, checking stock, and ringing a second supplier when the first has none.
• Collection. The trip to the branch, which is nearly always a detour rather than a stop on the way.
• Capital. You paid the supplier weeks before the customer paid you.
• Storage and shrinkage. The stock in the van, the parts that go missing, and the ones ordered for a job that never ran.
• Warranty. The return visit when a part fails, which the manufacturer covers and your labour does not.

The markup prices against that list rather than against what other trades charge. It then becomes a figure you can explain to a customer who questions it.

One rate across everything is the wrong shape

A single percentage overcharges on the expensive item and undercharges on the cheap one. A four thousand dollar unit does not take forty times the sourcing of a hundred dollar valve. A box of fittings takes more handling per dollar than anything else in the van.

Bands work better than a flat rate. A higher percentage on small value items, a lower one above a threshold, and a fixed handling charge on anything ordered specially. The customer sees one price per line and you stop losing money on consumables.

Decide what the customer sees

Two honest ways to present it exist, and one dishonest one.

You can show materials at your sell price, line by line, which most domestic customers expect and never question. A single supply and install price per item hides the split entirely. That suits work where the customer is buying an outcome.

What does not survive is showing trade prices and adding a separate margin line. It invites a customer to argue with the margin as though it were optional, when it is paying for real hours.

A quote is where the markup gets applied, not the invoice

Materials priced at quote time, on the line, carry their markup into everything downstream. Materials typed onto an invoice at month end go in at cost, by somebody in a hurry. The mistake stays invisible, because the invoice still looks right.

The lines go down once, each with its sell price, and the accepted quote becomes the invoice. From quote to invoice without typing it twice covers why retyping is where the numbers drift.

Check your real recovery once a year

A quarter of finished jobs gives two totals. What you paid suppliers against those jobs, and what you billed for materials. The ratio is your actual recovery, and it is always lower than the rate you think you charge.

The gap is made of parts left off invoices, jobs quoted at cost by mistake, and the consumables nobody lists. That gap is easier to close than a price rise, and it costs a customer nothing.

What to do first

• Write down what your markup is paying for, including the collection trips
• Band the rate by value instead of running one percentage
• A handling charge covers specially ordered items
• Materials take their price on the quote line, never on the invoice at the end
• Compare supplier spend against materials billed for one quarter
• Fix the leaks that comparison finds before you raise the rate