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Question DetailsAsked on 4/13/2016

What are reasonable material costs for a contractor to charge vs overhead/consumable costs?

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2 Answers


We use a "hybird" system that allows us to markup different costs of parts by a variable amount, to insure we are profitable. This allows us to nswtay in business and provide a two year parts and labor warranty on most all repairs.

Some charge less for labor, as customers often shop and choose by labor rate, only to find that the low labor, results in a very high markup on parts!

Most of us charge no more then needed, as it's a competitive business.


Answered 3 years ago by BayAreaAC


Good response as usual by BayAreaAC.

There are so many ways people do this - soem contractors apply a fixed % markup on materials, and also on subs (maybe a different %) - commonly at least 10-15% and probably more commonly (especially on materials they purchase) 20-30%, and on up to over 50-100% in some cases, particularly with high-end and special order items and appliances. I have seen tankless water heater markups now approaching 1000% - on a case where I was asked to advise on why a new tankless heater was not working right I saw a Noritz that lists for under $1000 billed out at over $9000 to the HVAC company's customer.

Overhead costs some recover partly from markup on materials, others put overhead all into the hourly labor rate, so it is not uncommon to see a 2:1 difference in markups and a resultant 25-50% difference in labor rates amongst otherwise competitive contractors.

As an overall ballpark number, assuming only a profit and handling/financing fee (maybe 10-20%) on materials so all overhead costs are included in the labor, a number of at least 25-40% bare minimum and more typically 50-100% depending on insurance/bonding/shop/equipment needs would be in the typical range. Highly specialized labor-intensive companies like some specialty contractors and licensed professionals like architects and engineers and such more commonly 100-140% overhead and profit combined.

And of course, their costs for (or avoidance of) insurance, bonding, licensing factors in a lot - as does to a very great extent their bonding history and worker's comp claim history and types of work they are insured for. For instance, a roofer or mason or tree service or window washer may pay around 40-70% worker's comp premiums on his labor cost because those are hazardous occupations with lots of claims, whereas an interior designer or carpet or drywall company or architect/engineer may pay 1/4 that rate or less. So - a General Contractor who is insured for roofing and siding work may cost (labor rate) as much as 25-50% more than one who is not, or instance. Ditto for contrators with good versus bad insurance or bonding claims records - I have seen contractors (not that I would hire) with worker's comp rates over 100% of their labor cost and bonding rates of 15-20% of job cost rather than 5% or under because of a bad claims record so they fall into the high-risk pool, which is sort of like a drunk driver auto insurance high risk pool.

If you meant what ratio should there be between materials and overhead/consumables cost, there would be no fixed ratio across the board on that, because every type of work and different jobs have different materials/consumables/labor requirements.

You could, for an idea but not trusting the prices too much, google a phrase like this (adjusted to your type of work of course) - ceramic tile flooring cost Homewyse - Homewyse is a website that lists approximate (and sometimes wildly wrong) "typical" costs for various types of home improvement and construction work, and breaks it down by raw materials, labor, and miscellaneous/tools/consumables amounts.

Answered 3 years ago by LCD

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