Markup on Materials – Setting the Proper Rate
Minimum Bottom Line Profit Should Average 9.4%!
For Trades & Subcontractors, at Least 11%
After Income Taxes Are Paid!
There is no preset national standard for markup on materials. The Internal Revenue Service’s Construction Industry Audit Technique Guide (May 2009) states that from the Means Contractor’s Pricing Guide include a standard 10% markup on material for profit. However, profit is only one portion of total markup; therefore, markup on materials starts at a minimum 10%. In some cases markup on materials can exceed 100%. This article provides guidance to the contractor, estimator or project manager with setting the markup rates on materials.
Setting the proper rate requires the management team understand that materials exist along a spectrum of condition, from simple raw materials status to highly complex and intricate status such as technology. The materials position along this spectrum greatly affects the markup formula. In addition to understanding the materials condition; other factors affect markup such as availability, delivery, condition, security and compliance. All of these issues impact the markup formula with materials. To assist the reader in understanding markup on materials,