How to mark up materials

Deciding how much extra to charge customers for materials you buy is an important business calculation. As well as understanding how to mark up materials, it’s equally important to understand why you should do it.

For tradespeople starting out in business, feeling comfortable about the markup on materials is a great way to focus on profitability.

What is markup on materials?

The markup on materials is the difference between the price you paid and the amount you charge customers for them.

By marking up materials you can increase your income. It is a necessary part of running a business.

What to consider in the markup of materials

It’s not just the purchase price that forms the total cost of your materials. You are likely to incur other costs related to buying the materials. These could include:

Delivery of the materials

If you use a trade supplier, check what they are charging for delivery rates. Remember to include the total cost in your calculations. If you collect the materials yourself, then transport costs could quickly add up.

If you don’t pass on some or all delivery costs it could reduce your profit.

Transport costs could include fuel and the wear and tear from using your vehicle. It is reasonable to factor these in as part of your markup process.

You might be able to get a trade discount on materials and delivery costs. For example, all Checkatrade members can enjoy exclusive rates with Selco, the timber and builders merchants.

The cost of storing materials

If you have to hold materials for a job before you use them, then you may be incurring further costs. Expenses like renting a storage area and electricity for lighting could be factored into your markup process.

Other costs relating to materials

If you buy materials in bulk, then you might need to divide them into smaller quantities. Again, you are likely to have incurred extra costs such as your time or paying someone to carry out the task.

How much markup to charge

There are no hard and fast rules. The amount that tradespeople mark up the materials varies based on a number of factors.

Do your research. See what other tradespeople in your area or similar businesses charge for materials. You want to make sure you don’t mark too much so you won’t be seen as competitive.

Some tradespeople might decide to make a 100% markup. This would double the price they charge customers. The amount is up to you.

When you are starting out in business, think about a lower markup to keep your overall price competitive while you are still building a customer base.

How to calculate markup for materials

Markup is usually given as a percentage. Here is an example of how it could look:

• You want to mark-up materials by 30%
• You pay £120 for the materials
• To work out your markup multiply 120 by 0.3
• The markup on your materials is £36
• Therefore you would charge your customer £156

Remember there is not a standard rule. It could take some trial and error to work out what works best for your trade in your local area.

What is a general contractor markup?

A general contractor markup is usually broader than the markup of materials. Materials are one of many costs used in calculating the contractor markup.

The contractor markup is the percentage added to the total of all of a contractor’s main costs (including materials). This is how they work out the profit on a job.

Similarly, a subcontractor markup percentage relates to how much extra a subcontractor charges in addition to the rate for their services.

Add some wriggle room

As well as dealing with the costs of the materials themselves, think about including some leeway in your markup. This extra space (or wriggle room) is where you quote a higher price overall than necessary.

Adding a little extra on top of your markup gives you flexibility. You can reduce your price of materials if a customer is unhappy with the amount. This means you can offer them a discount on your original figure.

It shows customers that you are willing to be flexible to win a job.

Keep an eye on price changes and discounts on materials

The prices of materials change, so it’s always a good idea to keep a close eye on them. If prices fall you can decide whether to pass on the lower cost to your customers. Similarly, if prices rise, you can decide what to charge customers.

Discounts available to tradespeople are a useful way of benefiting from lower purchase costs. You’ll need to see how this could affect the amount you charge customers.

Here are three ways of charging your customer for materials:

• Retail price plus markup – What they would expect to pay in a wholesaler, plus a little extra for your time and effort
• Discounted trade price – What you paid for trade rates, plus a little more
• Charging the retail price without a markup – What they would actually pay for the materials if they bought materials themselves

Let customers know why you mark-up materials

Choosing how to mark up materials isn’t just about generating business profits. You also need to consider what your customers will think about it. This is an opportunity to be open with customers and build their trust.

After all, if a customer looks at your quote and says “I could’ve bought those materials for less”, then you need to have an answer to justify your mark-up.

The customer probably hasn’t considered the time and cost involved in driving to and from a shop to buy the materials. Customers are also paying for your expertise in selecting the right materials for the job.

Negotiating prices with customers

If customers aren’t happy with the price you charge for materials, you can always suggest alternatives. This is where having some wriggle room is useful.

For example, you could use cheaper materials, so the price comes down but your markup remains the same. Customers should understand what impact cheaper materials might have on the quality of your work.

Alternatively, you could suggest that they buy the materials themselves or you share the cost. That way you can avoid some of the extra costs such as transport. Be aware that this takes the buying process out of your control, so you may end up with the wrong materials.

The difference between markup and profit margin

In this article, we’ve only looked at the markup of materials. Profit margin is how much money you make from a job after deducting all related costs. These include more than just the materials.

There are many business costs that you have to pay before you can make a profit. These could include rent, insurance, equipment, paying employees and sub-contractors. Your markup on materials could be used to offset some of these other business costs.

Here are some more tips to increase your profits as a tradesperson.

FAQs

How do I mark up materials?

You mark up materials by adding an amount to the price you pay for them and charging the higher amount to the customer.

Why should I mark up materials?

It’s an important way to earn income by covering some of your business costs.

What costs should I consider when I mark up materials? 

As well as the price of materials, look at related costs. These could include paying for couriers to deliver materials or collecting them yourself. Also, the cost of storing materials.

Why is it important to be clear to customers on the cost of materials?

Customers may think you are overcharging for materials compared with the retail price they see. Explaining why you mark up materials or discussing alternatives can build trust with customers.