What's a typical markup on subcontractor work?

Standard markup on subcontractor labor ranges from 10% to 25% depending on how much coordination, liability, and admin work you're absorbing. Low-complexity subs you supervise minimally (e.g., plumber on a residential bathroom) typically get 10%–15% markup. High-coordination subs on complex commercial work — where you're managing schedules, change orders, RFIs, and inspections — often warrant 20%–25%. Below 10%, you're typically not covering your overhead.

Should markup be on labor only or on total sub invoice?

Markup your total sub invoice — labor and materials together. Some GCs try to separate out sub material costs and mark those up differently, but this adds complexity without clarity. If you're managing the sub relationship, absorbing their schedule risk, and liable for their work quality, you deserve a margin on the whole invoice. The exception: if the sub is purchasing materials the owner is supplying or that are tracked separately by the owner's PM — then mark up labor only.

How is markup different from margin?

Markup is calculated on cost: 20% markup on a $10,000 sub invoice = $2,000 markup = $12,000 billed. Margin is calculated on selling price: $2,000 ÷ $12,000 = 16.7% gross margin. They're two different ways to express the same relationship. Most contractors think in markup (cost + percentage); most financial analysis uses margin (profit ÷ revenue). A 20% markup equals a 16.7% margin; a 25% markup equals a 20% margin.

Do I have to disclose my markup to the client?

On most private work, no — you're providing a contract price, not an itemized cost sheet. On cost-plus contracts (where the client pays actual costs plus a fee), you typically must disclose the actual sub invoices, and your fee structure is negotiated explicitly. On public work, especially government cost-plus contracts, disclosure requirements can be extensive. For fixed-price private contracts, your markup is your business.

What's the markup on materials a subcontractor supplies?

If the sub is purchasing materials and including them in their invoice, mark up the whole invoice (see above). If you're supplying materials that the sub installs, apply your standard material markup (typically 10%–25% on top of your cost) plus the sub's labor at their rate. Don't let material cost 'pass through' without markup — you're financing those purchases, managing the procurement, and liable if materials are wrong.

What happens if I underprice my subcontractor coordination work?

You eat it. The most common version: a job with $80,000 in sub work billed at 10% markup = $8,000. You spend 30 hours on RFIs, schedule management, dispute resolution, and quality inspections. At $100/hr of your time, you've consumed your entire markup on management alone — and you haven't counted overhead, insurance, or risk. Underpricing sub coordination is one of the most common ways GCs do $500K in revenue and net under 5%.

Subcontractor Markup and Pricing: How to Price Labor You Don't Do Yourself

Running subcontractors isn't free labor arbitrage. You're not just passing through invoices with a finder's fee. You're accepting schedule risk (if the sub is late, the project is late — and that's on you), quality risk (if they do bad work, you're fixing it), liability exposure (their guys are on your site), and administrative overhead that compounds with project complexity.

Price it like the work it is.

What Markup Actually Has to Cover

Before picking a percentage, understand what that markup has to absorb. Every point of markup that doesn't cover a real cost is a point available for profit. Every real cost that doesn't get into your markup comes out of your pocket.

Overhead allocation: Your office, estimating time, project management software, vehicle costs, insurance premiums — these apply to sub-work hours the same as they apply to your own crew's work. If your overhead runs 12% of revenue, you need at least 12% markup before you see a dollar of profit.

Project management time: Every sub relationship has a management load. Pre-qualified subs on repeat work: low. New subs on complex commercial: high. A rough benchmark: plan for 3%–8% of the sub invoice in management time (reviewing their proposals, coordinating site access, inspecting work, processing pay applications, resolving disputes).

Accounts receivable float: You pay the sub on their terms; you collect from the client on yours. If the sub invoices net-30 and your client pays net-45, you're financing a 15-day gap on every invoice. On $100K of annual sub billing, that's a meaningful working capital drag.

Defect and warranty exposure: If the sub's work fails within your warranty period, you fix it — then you chase the sub for reimbursement, which takes time and sometimes doesn't recover fully. Some portion of your markup is a self-insurance reserve for this.

General liability insurance cost: Your GL premium is partly driven by your payroll and partly by your subcontracted work. The "sub operations" coverage element costs real premium dollars. Factor it in.

How to Set Your Markup Rate

Start from overhead, work backward to margin, and verify with comp rate.

Step 1 — Calculate your overhead rate

Overhead rate = Total annual overhead ÷ Total revenue (or total cost of goods sold, depending on how you allocate).

If your overhead runs $80,000/year and you do $400,000 in revenue, your overhead rate is 20% of revenue — or ~25% of direct costs. Any markup below 25% isn't covering overhead.

Step 2 — Add your target profit margin

Most general contractors target 8%–15% net profit on the business. If you need 10% net and your overhead is 20%, you need at least 30% total gross margin — which means a markup of approximately 43% on cost ($100 cost → $143 billed → 30% margin).

Step 3 — Reality-check against the comp rate

What's the market charging for the same level of GC service in your market? On residential renovation, GC fees typically run 10%–20% of project cost (which is applied to sub and self-perform work). On commercial construction, 7%–15% GC markup is common on sub work. If your overhead math says you need 30% and the market is 15%, something has to give: either reduce overhead, charge above-market (only works if you have differentiated service), or accept thinner margins while growing.

The Subcontractor Pricing Calculator

The subcontractor pricing markup tool on Reise runs the math for a specific job: enter your sub invoice amount, your overhead rate, your target margin, and management time estimate — and it shows you the markup percentage, the billed amount, and your expected net on the job.

Use it before you commit a price, not after the sub quotes arrive and you're trying to pad on the fly.

Common Markup Mistakes by Job Type

Residential renovation (owner-occupied)

Common mistake: Treating all subs the same regardless of coordination complexity. A plumber doing a bathroom rough-in is not the same complexity as an HVAC contractor doing a ductless mini-split system upgrade that requires permits, inspections, and three separate site visits.

Better approach: Base + variable. Base markup (covers overhead): 12%–15%. Variable add: +3%–8% for permit-pulled work, +5%–10% for work requiring multiple inspections or specialized coordination.

Light commercial tenant improvement

Common mistake: Applying residential markup rates to commercial work, which typically involves more paperwork, more subs, more coordination, and more GC liability.

Better approach: Start at 18%–22% and adjust up for complexity. On TI work over $500K with more than 5 sub trades, consider cost-plus structuring (typically GC fee of 8%–15% of actual cost) instead of fixed-price with embedded markup.

Public work and prevailing wage

Common mistake: Marking up prevailing wage subs at standard rates without adjusting for the administrative overhead of certified payroll verification, Davis-Bacon compliance, and public owner reporting requirements.

Better approach: Add 3%–5% markup specifically for compliance administration on any prevailing-wage subcontracted scope. These jobs generate more paper than private work.

What to Do When the Sub Quote Comes In High

You got a sub quote that, when marked up to your standard margin, produces a number you're not sure the client will accept.

Your options, in order of preference:

Re-scope: Can the sub reduce scope to hit a number that works? Often yes on private work, especially if materials or access are flexible.
Get competing quotes: For any sub scope over $10,000, you should have at least 2 quotes. The spread between the lowest and highest qualified bid often exceeds your entire markup.
Negotiate the mark-up on transparency: On cost-plus work, you can propose a slightly reduced fee for the high sub scope and preserve it elsewhere. On fixed-price, don't negotiate against yourself — price it, present it, and let the client decide.
Self-perform: If you can do the work yourself at a lower effective cost than the sub plus your markup, the math is simple. But factor in the opportunity cost of your crew — self-performing a sub scope ties up capacity.

Do not absorb the gap out of your markup. That's how a $400K project with 12 subs quietly nets you $8,000 at closeout.