Markup on materials: how to stop the hidden leak in your quotes

Ask ten trade business owners what they earn on materials and you will get ten different answers. Ask them how they worked it out and the answer is often the same: 'I know it by heart.' That is exactly where the problem starts. This guide shows where margin typically leaks away, why memory is the most expensive price list in the business, and how three simple habits close the gap.

Keep these three prices strictly separate. The list price is the wholesaler's recommended price before discount - hardly anyone actually pays it. The cost price is what you really pay after your discount agreement, and it varies from firm to firm and from product group to product group. The selling price is what the customer pays, and it needs to sit above your cost price with a markup that covers more than the item itself.

The trouble starts when the three prices blur together. If you price from list price minus 'roughly the discount I usually get', or from what an item 'usually costs', you are calculating with numbers that no longer exist.

Wholesale prices move constantly. Pipes, cable, fittings, timber and fixings are adjusted several times a year, and discount rates get renegotiated. The price you remember from last winter is a snapshot - and almost always too low, because prices rise more often than they fall. When you guess, you systematically guess in the customer's favour.

The insidious part is that every single guess feels harmless. Five kroner here, twelve kroner there. No single line hurts. But a quote rarely has one line item - it has 15, 20 or 40. And then it adds up.

Markup on materials is not extra profit on top of your hourly rate. It typically has to cover a set of real costs that otherwise land on your account:

• Procurement time: ordering, collection, checking delivery notes and invoices
• Stock and logistics: space in the workshop, space in the van, handling
• Waste and wrong purchases: offcuts, breakage and the wrong dimension that never gets returned
• Warranty and complaints: you are liable for the item during the warranty period, not the wholesaler alone
• Tied-up capital: you pay for the materials up front, often weeks before the customer pays you

That is why there is no single correct markup figure. Many businesses typically sit in the 10-30 per cent range depending on product group: lower on expensive, fast-moving standard items and higher on small parts, special orders and anything that needs extra handling. What matters is that the percentage is a deliberate choice - not the accidental result of guessing.

Take a bathroom job with 20 material line items. All amounts exclude VAT. The last time you did a similar job, the materials cost you DKK 17,000 to buy. You price from memory and add 15 per cent: DKK 17,000 times 1.15 is DKK 19,550. That is the figure you put on the quote.

But the wholesaler has raised prices by just over 8 per cent since then. Your real cost today is DKK 18,400 - which is what your current price file would have shown. Your actual margin is therefore DKK 19,550 minus DKK 18,400, or DKK 1,150. That is 6.25 per cent, not the 15 you thought.

Had you calculated from today's cost price, the selling price would have been DKK 18,400 times 1.15, or DKK 21,160. The difference is DKK 21,160 minus DKK 19,550, a total of DKK 1,610 on a single job - or DKK 80.50 per line item on average. None of the 20 guesses felt wrong. They simply added up.

Do 100 jobs of that size a year and the leak is DKK 161,000. Money that was meant to cover procurement time, waste, warranty and tied-up capital, but was never invoiced.

• Use the price file, every time: always price from your current cost price from the wholesaler, never from memory. Ask your wholesaler for an updated price file and use it as your only source.
• A fixed markup policy per product group: decide once what you add on pipes, on appliances, on small parts and on special orders. Pricing then becomes a lookup, not a gut feeling.
• Do post-calculations: once a job is closed, compare actual material costs with what you invoiced. It is the only way to find out whether your policy holds up in reality.

Markup on materials is not about charging more for the goods, but about getting paid for the work and the risk already involved in supplying them. The difference between a healthy and a strained materials account is rarely one big decision - it is 20 small ones. Tools can do the heavy lifting: in Calco, your current wholesale prices sit behind every quote, so you describe the job and the line items are calculated from today's cost prices with your own markup policy instead of memory.