Material Markup 101: What Every Job Shop Should Know
Passing material through at cost is leaving money on the table. Here's how to think about markup and what numbers actually make sense.
A lot of shops treat material as a pure pass-through — they buy it at cost, charge the customer exactly that, and call it even. This feels fair. It's also leaving real money on the table.
Material markup exists for a reason. When you buy material for a customer's job, you're taking on risk. You're purchasing before you've been paid. You're carrying the cost on your books until the invoice clears. You're responsible for getting the right spec, in the right quantity, delivered in time. That has value.
What's a reasonable markup?
The industry standard for job shops is somewhere between 20% and 40% on raw material. Where you land depends on your volume, your purchasing leverage, and how much material handling is involved.
A shop doing mostly long-run production work with a handful of materials they buy in bulk can afford to run a lower markup — they're not spending much time on procurement per job. A shop doing short-run custom work, pulling different alloys for every job, sourcing from multiple suppliers — that shop should be on the higher end.
The common mistake is applying no markup because it "doesn't feel right" to charge more than cost. But you're not a material distributor. You're a manufacturing service. The material is a component of the job, not a separate line of business.
Subcontract work is the same
If you're sending parts out for heat treat, anodize, plating, or any other outside process, the same logic applies. You sourced the vendor, you managed the scheduling, you're responsible for the result. A 15% to 25% markup on subcontract work is standard and defensible.
How to apply it without thinking about it
The simplest approach: set a default markup percentage once and apply it to every material and subcontract line item automatically. Most customers don't even notice it's there — they're focused on the total and whether they trust the work.
The shops that get into trouble are the ones that apply markup inconsistently — remembering it on some jobs, forgetting it on others. Consistency is what protects your margin over time.
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