Estimating Materials and Setting Markup

The short version

• Estimate quantity, then add waste, then add a contingency. They are three different numbers.
• Markup and margin are not the same thing and mixing them up is how owners underprice.
• A second supply run can cost more than the material it fetches.
• Price at today cost, not what you paid months ago.

Materials are where quotes quietly go wrong. The labor estimate is usually close, because you have felt the job in your hands. The material estimate is arithmetic done quickly in a parking lot, and it is usually short.

Short material estimates do not just cost you the material. They cost you the second trip, which is often the more expensive half of the mistake.

Quantity, waste and contingency are three separate numbers

Start with the clean quantity the job needs if nothing goes wrong and nothing gets cut badly. Then add waste, which is the material that ends up in the truck as offcuts. Then add contingency, which is the material you need when a condition turns out differently than you expected.

Owners tend to fold all three into one padded guess. Separating them means you can tune each one from experience. If you consistently come back with too much waste material, your waste factor is high. If you are running out mid job, your contingency is low.

Count the second trip as a real cost

Running short does not cost you the price of the missing part. It costs you the drive to the supply house, the wait, the drive back, and the momentum of a crew standing around. On a half day job, one supply run can consume a meaningful slice of the profit.

That is the justification for ordering a little long. Extra material sits on a shelf and gets used on the next job. A second trip is gone forever.

Markup and margin are different numbers

Markup is what you add to your cost. Margin is what fraction of the final price is profit. They are related but they are not interchangeable, and quoting a margin target as if it were a markup is a standard way to end up underpriced.

Adding fifty percent to your cost does not give you a fifty percent margin. Pick one of the two, write it on the wall, and make sure everyone who builds a quote is using the same one.

• Markup is applied to cost and produces a price
• Margin is measured against the final price
• A given markup always produces a smaller margin number
• Decide which one your team quotes in and never mix them in one document

Markup pays for more than the part

Customers sometimes say they can buy the part cheaper online. They can. What they cannot buy is your trip to get it, your knowledge of which version fits, your account with a supplier who will make it right, and your warranty on the installed result.

That is what markup pays for. When a customer offers to supply their own material, you are allowed to accept and to exclude that material from your warranty, in writing.

Reprice your common materials on a schedule

Material costs move, and a quote template built last year is quietly losing money on every job it produces. Pick a handful of materials that appear in most of your jobs and check their current cost on a fixed schedule.

If your common materials have moved meaningfully since you built your flat prices, the flat prices need a pass too. This is a half hour of work that protects every quote you send for the next quarter.

Building a material line from a clean quantity

| Step | What you add | Why | | --- | --- | --- | | Clean quantity | What the job needs exactly | The starting point | | Waste factor | Offcuts and unusable pieces | Cuts and damage are normal | | Contingency | Extra for conditions you cannot see | Prevents the second supply run | | Current pricing | Today cost, not last purchase | Protects replacement cost | | Markup | Your standard uplift | Pays for carrying, fetching and warranty |

Do this before your next job

Rebuild one material heavy quote template with the three numbers separated.

1. Write the clean quantity, the waste factor and the contingency as three separate lines.
2. Check the current cost of the five materials that appear in most of your jobs.
3. Decide whether your team quotes in markup or in margin, and write it where they will see it.
4. Add an exclusion for customer supplied materials to your standard quote language.
5. Set a recurring date to reprice those five materials and the flat prices built on them.

Common questions

Should material markup be the same across all materials?

Not necessarily. Low cost, high nuisance items often carry more markup than expensive items, because the handling cost is similar but the base price is not.

What do I do with leftover material?

It belongs to you unless the quote said otherwise. Say so in your terms so there is no argument on the last day of a job.

Can I show materials at cost and charge a separate handling fee?

You can, and some trades do. It is more transparent and it moves the negotiation to a single line. It also makes your cost visible to a customer who may shop it.

How do I handle a customer supplied part that fails?

Exclude it from your warranty in writing at quote time, and charge your normal labor to replace it. Say this kindly and early, not after the failure.

Keep reading

• How to Price a Service Job Without Guessing
• Change Orders That Actually Stick
• Invoicerus for painters
• Invoicerus for flooring contractors

Try it on your next job

Open the job price calculator and run one real job through it. No account, no card, nothing to install. If it saves you time, the free invoice generator is the next one to try.

Invoicerus does the same work on autopilot once your services and prices are set up. Start free and bring one week of jobs with you.