SHORT VERSION
Set your markup on materials by category, off what the material costs you by the time it’s installed, not off the receipt. Consumables, wire and pipe, and gear like panels and fixtures can’t carry the same percentage. Put those numbers on one table, behind the flat rate tasks in the price book and on the phone in the field, so the markup gets looked up rather than worked out. The number comes out different job to job because right now there’s no table to pull it from.
There isn’t a percentage we can hand you, because your markup on materials has to come off what material actually costs you and not off somebody else’s number. The method is the part that’s the same in every shop. Work out what a dollar of material costs you by the time it’s installed, decide what it has to return, and set the number by category, because a box of wirenuts and a panel can’t carry the same percentage. Then put it on a table where a person can look it up. The number moves job to job because there’s no table to pull it from, and without one it has to be worked out again on every price.
What the markup actually has to cover
The receipt is one part of what material costs you, and it’s the only part that’s in front of anybody when the price gets built.
Somebody has to go get it, and an hour at will call is an hour nobody is billing. It doesn’t attach to that material anywhere. Truck stock is real money too, spread across every van you run, and most shops can’t say within a few thousand dollars how much is riding out there.
Then there’s the wrong breaker. It goes back in the truck, sits three weeks, and by the time it’s returned the credit lands on the account with nothing tying it to the job it came off of.
None of that is in view when somebody is pricing a receptacle. The receipt number is. So a markup set against the receipt is set against a number with most of the cost left out, and the difference comes out of your margin on that job.
Why does the number come out different on every job?
Because material gets priced in two places, and usually only one of them has anything written down.
On quoted work it goes into the estimate. If there’s a price book behind it, the markup is baked into the task price, and it holds until supplier pricing moves and nothing triggers an update to the cost.
On a service call it gets priced in the room. There’s no markup table on the phone to pull from, so the number comes off what that material cost the last time somebody bought one, which might have been last spring. The office and one of your guys can price the same GFCI receptacle the same afternoon and land in different places, because neither one has a number to look up.
Then there’s the material that never reaches either place. Nothing in the buy requires a job number before somebody can walk out with the material, and nothing in the close asks for the receipt afterward, so the purchase never gets attached to the job it went into. That material gets installed and billed at whatever the price looked like that day, and when job costing runs there’s no recorded cost to check the billed amount against.
One table, and it has to be in both places
The number you’re after isn’t one number. Split material into a few categories and set each one on its own:
- Consumables and devices
- Wire and pipe
- Gear: panels, fixtures, chargers, transfer switches, the things that come off a supplier quote
- Customer supplied material, which gets a handling number or a stated exclusion in the proposal
Set each category off what that material costs you by the time it’s installed. Then it stops being a fresh decision every time something gets priced, and it only changes when you change it. Put a date on the table and a standing time to reset it, quarterly or whenever supplier pricing has moved enough to notice, so the cost side doesn’t go stale underneath a percentage that stayed put.
The table has to be in two places or it only works in one of them. Behind the flat rate tasks in the price book, so quoted work carries it without anybody thinking about it. And on the phone in the field, so material priced in front of the customer pulls the same number the office would have used. Nobody sets the markup while they’re pricing. They look it up.
The last piece is a required job number on the material purchase, and it isn’t there for the markup. It’s there so you can check it. Six months of material tied back to the jobs it went into is the only thing that tells you whether the number you set is holding. Until that link exists, you set a number and never find out.
Common questions
How do I work out what material actually costs me?
Start with the supply house account rather than job by job, because until material carries a job number there’s nothing to match it against. Six months of statements tells you what you spent. Then add what it cost to get it: counter time nobody billed, what’s riding on the trucks, and returns where the credit never came back. That total is the cost side of your markup, and it’s higher than the receipts.
Should the markup be the same on a service call and a quoted job?
The percentage should be, and both should pull it off the same markup table, meaning one set of category numbers the office and the field price from. How it gets applied is different. On flat rate work the markup is already inside the task price. On time and material it goes on when the invoice gets built.
What do I do about fixtures the customer buys themselves?
Decide it once and write it into the proposal, either a stated handling charge or a stated exclusion. Customer supplied gear still costs you time. It gets stored and checked, and when a decorative fixture shows up with parts missing, the phone calls come to your office either way.
Does the markup change on a change order?
It shouldn’t. What actually costs money on change orders is that the material gets bought and installed before the change is priced, so it goes in at cost or never gets billed at all.
