How much do you guys mark up materials?
I add about 15% to everything, is that normal?
Is 25% or more standard practice?
There obviously must be some kind of scale, depending on material cost. 15% of a $5 hinge is not the same as 15% of a $500 part. Though both may take the same amount of time to procure.
Does anyone bill materials at actual cost for a justifiably good reason?
I’m interested to see what the custom is in our area of trade.
Edited 4/7/2007 4:15 pm ET by Phil Laysheo
Replies
I almost always charge 15% above cost for materials to cover overhead and items like glue, sandpaper etc. plus an hourly wage. If I use the particular project as a learning tool, I adjust the hours but maintain the hourly rate.
Don
Thanks for the input DL.That brings up an interesting question. What is the theory of the mark up, what is it supposed to cover? Our time to pick up materials? Our overhead?Shop supplies?Just another way to make a job profitable?
Phil,You asked about the theory of markup. For materials, the markup usually is intended to cover the cost of acquiring the materials. That would include shopping, traveling, shipping costs, unloading, inspecting, storing. Overhead for labor is also called a burden rate and includes salaries, benefits (in companies), expendables like sandpaper and finishing materials, depreciation on tools, shop expenses like sharpening fees, expense tools like blades and bits, and any other shop expenses that are not capital expenses.You can handles these any way you want to, within reason, as long as you are consistent. For example, I include travel time for buying lumber in my labor estimate, because it varies so much. If I can buy material for several projects on one trip, I can pass on the savings. Also, I usually just put a "guesstimate" in my materials cost for shop supplies like sandpaper and finishing chemicals. As a result, my "salary" is a lot closer to my burden rate.I hope this is helpful. Good luck, Tom.
Something to think about is making sure your mark up covers the cost of un-used hardware does not get used. and sits around for a few years then gets tossed. When I was a pro photographer in the days of shooting film most photogs would mark up there film and processing 100% on film that was delivered to clients because you always had hundreds of dollars of film that was leftover and not billed to anybody. Anyway don't sell yourself short.
Troy
Hi Phil ,
Another angle to think about , I'm guessing you do WW furniture / cabinet type of work , right ?
Personally I am not selling materials , rather a completed product at a price that includes the cost of materials but never break it down to my clients.
Suppose you tell the client you bought 200 bf of Oak to produce the job and it will cost $900 dollars , but you may have only used 150 bf to produce the job.
The client then thinks he has paid for 200 feet of Oak , the client may see some of that Oak that has not been used and expect that he owns that material .
It has happened to others and unless your regular practice is to return any unused material to the clients , use caution .
It is perfectly fine to mark materials up and along with other expenses formulate a selling price to your client and it is fine to actually sell materials as well , but not in a job you are building .
dusty
dusty,There is some good experience in your words, thank you.The ONLY reason that I break my bid into labor and materials is the following:In a bid, my labor cost is fixed while my material costs are approximated. It's tough to imagine every nail that goes into a job. The last thing I should have to eat my shirt on is materials. So I make it clear to my clients that material estimates are ballpark figures. Most seem to understand this just fine.p.s. yes! I do fine woodworking, custom cabinetry and some restoration.
Edited 4/8/2007 2:18 pm ET by Phil Laysheo
Hey Phil ,
Another way of approaching this is supplies you use for most all jobs , glue , nails , screws , fasteners , sandpaper , electricity and other related costs of doing business like license fees ,Rent ,insurance a host of others should be charged to your overhead and not charged to each job .
Your hourly fee should include your overhead as well as your hourly labor rate , anything beyond that I'm told is called profit .
Sometimes you will need to purchase more volume of material than you actually need , if it is something you will use in the normal course of your works , you will re coup the extra in short time or you have the option of charging it to your expenses to that particular job , in doing so you lower your profits on paper but increase your inventory value , or not .
regards dusty
I usually factor in a 15%-20% mark up on materials when doing a bid. I do not disclose my materials cost to the client however, I am simply selling them a finished product for a fixed price. Occasionally, when I work on a time and materials basis, my mark up is 20%. Part of this mark up is compensation for the risk involved in the possibility of having to provide a warrenty in the event of faulty materials. You can bet the client is going to call you, and not the manufacturer if something goes wrong.Since most of my suppliers give me a 10%-20% contractors discount, the mark up hardly ends up costing the clients much over retail anyhow.Matt
This is a very interesting discussion because it is so directly related to survival in costing, bidding and interacting with the customer. I'm surprised at most of the answers. They are far too low.
There are really 2 questions here. How do you factor the costs of materials into your own conceptualization of the price of a job, and how do you tell the customer those numbers?
There are a number of forumulas for marking up raw materials in any manufacturing process. When working with raw materials that you work into a finished product, if you don't mark up the cost 100%, you are working on margins that are so thin, that you have absolutely no room for error. I don't think it is ever wise to break down a business's quote into the component costs the business sees. There is no reason for the customer to see that or expect it. You work up s quote, using all the factors you can determine. That gives you a single number you have to present to the customer. Sometimes that's the actual number you use. Sometimes, staring at that number, you know you'll never get the job, so you have to ask yourself how much you can afford to reduce that figure.
The biggest mistake new businesses make is to underbid when they know they should really be quoting at the higher price. Do that too often and you can't stay afloat.
In any case, give the customer a single number. That's your quote, it's your understanding of the total effort.
Rich
oldusty--I was doing a job of making trim for two apartments. The customer came buy and saw the stack of cypress(about 2000bf) and asked "so this is my wood?" I looked at him and pointed to stacks of trim that I had run through molder and said "That's your wood." I pointed to the stack of rough cypress and said "That's my wood." rick14--When I bid a contract I figure all of my costs, then I give a price. I do a rough estimate, I price all of my materials high and figure in time/gas to pick up or shipping. I also figure in my current shop rate per hour. The 'price' is what my customer pays if they want cabinet/built-in, etc. I will do a rough drawing and present package to them.
If they want to reduce the cost I will take something out of the package and re-price. I require 1/3 to 1/2 down. I don't do shop drawings until I have contract/check and all drawings except the first drawing are mine. Any material left is mine, but I will include a quart or pint of touch-up paint if there is paint left over. I track my projects on excel so I can keep track of what it really costs so the next time I will do a better job and hopefully make more money.Marion
Hello Marion ,
Sounds like you've been there and done that .
When I first started out I would make a layout or drawing with dimensions and such to show and give a bid to potential clients , too often they took my drawings / layout and obtained other bids and made it much easier for the next person to simply give a bid off my design or drawings. Some clients may show the next bidder the plan and tell them the other guy will do the job for a price much lower then actually bid the first time .
As a new business I suppose I was eager to land jobs , besides giving my work away I was also giving my ideas and time and drawings away , no more .
No drawings plans leave my hands until a deposit has been secured . I also offer a planning service where depending on the scope of the job , I may offer to draw the plans along with a bid and for an agreed upon price, they are then free to do as they wish with the plans , they own them . In 25 years only a few opted to do that . I think when I offer it to them they begin to understand how things work .
regards dusty
My experience is with home additions, remodeling, and reconstruction. If I'm paying time and materials then I expect to pay as agreed prior to the job either:
a) actual material costs, plus the agreed hourly rate for getting the materials. I've used this when I had an account with a lumberyard and all materials went directly on that account.
b) actual material costs, plus an agreed percentage for whatever, plus the agreed hourly rate for getting the materials.
c) actual material costs, plus an agreed percentage (probably larger than in b) which covers getting the materials.
In any case if I'm paying directly for the materials I assume I own any leftovers. So if I paid for 200 bf of cherry for a built in bookcase, and there is 40 bf leftover, I own the 40 bf.
If I'm paying based on a fixed cost bid then I don't care what the materials cost unless there is an allowance for some of the materials. In that case I expect one of the above, again based on what was agreed prior to the job. Or the allowance can be at the nominal retail price.
To me, paying a discounted price and telling a customer the price was higher isn't quite honest. Common practice perhaps, but still not being honest. On the other hand I've readilly agreed to having a contractor supply materials at a markup over their discounted price when it's saved me money compared to what I could get the materials for.
25% is standard for me. As others have said, this covers my obtaining, transporting and storing the materials.
TWG.
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