“Should I mark up my sub’s price, and by how much?” Yes, you should mark it up. The sub’s price is what the work costs you, not what it is worth to the customer, and passing it through at cost means a share of every job carries none of your overhead and none of your profit. How much to add depends on what the sub’s work costs you beyond the invoice, and that is a number you can work out.
How much of the work goes through subs
The Census Bureau’s 2022 Economic Census measured both sides of subcontracting: the cost of work a contractor subcontracted out to others, and the value of work it did as a subcontractor for others. As a share of the value of construction work:
| Kind of contractor | Subcontracted out to others | Done as a sub for others |
|---|---|---|
| New single-family home builders (except for-sale builders) | 27.4% | 9.4% |
| Residential remodelers | 19.8% | 5.7% |
| All specialty trade contractors | 8.0% | 32.1% |
| Electrical contractors | 5.7% | 33.1% |
| Plumbing, heating and air-conditioning contractors | 7.4% | 29.5% |
| Drywall and insulation contractors | 8.5% | 44.7% |
The percentages are this article’s arithmetic on the Census dollar figures. For a remodeler, about one dollar in five of the work passes through to subs. If that dollar is billed at cost, a fifth of the year’s sales pays nothing toward the truck, the insurance or the owner. And for many specialty trades, about a third of the work is done as somebody else’s sub, which means the general contractor is deciding the same question about your price. Both sides are covered below. Job Costing shows the rest of the Census yardstick: materials, payroll and what is left.
What the sub’s invoice leaves out
The sub prices the work. Everything around the work is still yours:
Setting the number: a worked example
The simplest approach is one markup on everything, set from the margin you need; Markup vs. Margin has the formula and the table. Another approach is a lower markup on sub work than on your own labor, on the reasoning that it uses less of your shop. That can be fair, but only if you know what it does use. Here is a way to build the number, with illustrative figures; yours come from your own books.
Say a remodeler’s bathroom job includes an electrician at $4,000 and a plumber at $2,500, so $6,500 of sub work. The owner expects to spend 6 hours on it: two walk-throughs, scheduling, two site checks. His overhead works out to $75 for every hour he sells (Overhead per Billable Hour shows how to find yours). He adds 3% of the sub cost for callbacks and delays, and he wants a 10% profit margin on the price.
| Line | 10% flat markup | Built-up price |
|---|---|---|
| Sub invoices | $6,500 | $6,500 |
| Owner’s time, 6 hours at $75 | (not priced) | $450 |
| Callback and delay allowance, 3% | (not priced) | $195 |
| Cost to the business | $7,145 | $7,145 |
| Price to the customer | $7,150 | $7,939 |
| Left as profit | $5 | $794 (10% of price) |
The built-up price is the $7,145 cost divided by 0.90, which is what a 10% margin means. It works out to about a 22% markup on the sub invoices. The flat 10% markup covered the owner’s time and the allowance and left five dollars. Neither column is a rule; the point is that the markup on sub work should come from what the sub work costs you, not from a habit.
Two adjustments are worth making. A sub you have used for years, who shows up, pulls the permit and handles callbacks, costs you less to manage than a new one, and the allowance can drop. A sub doing a large share of a job you barely touch, say a roofer you bring in on a remodel, uses less of your time per dollar, and the hours line shrinks.
Show it or not
How the markup appears depends on the kind of contract, and Remodeling Contracts: Fixed Price, Cost-Plus and Allowances covers the three in full:
Whatever you choose, apply the same markup to the sub’s change orders. An extra circuit the electrician adds mid-job takes your time like the rest; Change Orders covers writing them.
When you are the sub
If a third of your work comes through general contractors, remember they will add their own markup to your price. Your price still has to carry your overhead and profit, because theirs does not pay for your truck. Price your sub work from your own costs, and do not shave it on the theory that the general contractor needs room; that room is theirs to find.
The paperwork with every sub
- A written subcontract. Scope, price, schedule, who pulls permits, cleanup, payment terms, and a warranty at least as long as the one you give the homeowner.
- A license check. Look the sub up on the state board’s search for the work they will do. Some states make hiring an unlicensed sub your problem; Virginia’s regulations list “contracting with an unlicensed or improperly licensed contractor or subcontractor” among the prohibited acts (18VAC50-22-260 B 29).
- A current certificate of insurance before the first day. What a missing one can cost at your workers’ comp audit is in Uninsured Subcontractors, and Answering “Are You Licensed and Insured?” covers sending the homeowner the same proof.
- A W-9 before the first check. Then, at year end, a Form 1099-NEC. The IRS instructions say the reporting threshold rose to $2,000 for tax years beginning after 2025, adjustable for inflation from 2027, and the 1099-NEC is due by January 31. Payments to a corporation generally need no form. 1099-NEC for Your Subcontractors has the details.
- Lien waivers with each payment, where your state uses them; see Mechanics’ Liens for Small Residential Contractors.
Then track it. Put the sub invoices, your hours on the sub work and the callbacks against each job, and after a season you will know what your subs really cost to run, which is the only honest basis for the markup.
General information, not legal or tax advice. Rules change and vary by state; check with the agency named above or a professional for your situation.