Most field-service shops should mark up subcontracted work 20% to 30%, not the 10% to 15% that general contractors use. The reason is simple: a GC's whole business model is coordinating subs, so their overhead is already spread across a large volume of subbed dollars. A service shop that subs out one scope on one job is adding revenue that still has to carry its share of trucks, dispatch, insurance, and office cost — and at 10% markup, it usually does not.
This guide shows the math for why, gives you a markup schedule by risk level, covers the insurance exposure almost nobody prices in, and explains how to carry subbed scopes in a flat-rate price book without them quietly wrecking your margin.
Why subcontractor markup is different for service trades
Search for "subcontractor markup" and nearly every result is written for a residential remodel general contractor. The consensus number there is real: GCs typically mark up subcontractor work 10% to 20%, usually around 15%, and in competitive bid markets it lands closer to 10% to 12%.
That number does not transfer to an HVAC company that subs out an electrical panel upgrade, a plumber who subs concrete cutting and restoration, or an electrician who brings in a crane for a service mast. Three things are different:
- Volume. A GC might run 60% to 80% of job cost through subs. Their 15% is applied to a very large base. You might sub out 5% of your annual cost of goods. The same percentage produces almost nothing.
- Warranty. The homeowner called you. When the subbed work fails in eight months, you are the one rolling a truck and eating the callback, not the sub. That risk has a price.
- Overhead structure. Specialty trade contractors carry overhead of roughly 10% to 15% of revenue, with best-in-class firms at 6% to 8%. Every dollar of subbed revenue you invoice has to absorb that same overhead rate — the sub's invoice does not come with a free pass.
The math: why 10% markup on a sub loses money
Take a $2,000 subcontracted electrical scope inside one of your jobs. Assume your overhead runs 12% of revenue — a mid-range number for a specialty trade shop. Overhead gets absorbed against the full invoiced amount, not against your gross profit.
| Markup on sub | You invoice | Gross profit | Overhead absorbed (12% of invoice) | Net result |
|---|---|---|---|---|
| 10% | $2,200 | $200 | $264 | −$64 |
| 15% | $2,300 | $300 | $276 | +$24 |
| 20% | $2,400 | $400 | $288 | +$112 |
| 25% | $2,500 | $500 | $300 | +$200 |
| 30% | $2,600 | $600 | $312 | +$288 |
At 12% overhead, roughly 14% markup is your break-even on subbed work. You need about 28% markup before a subbed scope earns the same 10% pre-tax net you would want from your own labor.
Run your own overhead number instead of borrowing 12% — the method is in our guide to calculating overhead for contractors. And if you find yourself converting between markup and margin while you do it, the free margin and markup calculator handles it, and the markup vs. margin explainer covers why the two numbers are not interchangeable.
A subcontractor markup schedule by risk
One flat percentage across all subbed work is the same mistake as one flat percentage across all materials. Price the risk, not just the dollars.
| Situation | Markup range | Why |
|---|---|---|
| Long-term sub, simple scope, you are not on site | 15–20% | Low coordination, low callback risk, proven quality |
| Standard subbed scope inside your job | 20–25% | You schedule it, inspect it, and answer for it |
| New or unproven sub, or you warranty their work | 25–35% | Rework risk sits with you, not them |
| Emergency or after-hours sub fill-in | 35–50% | You pay a premium rate and still carry the job |
| Sub cost above roughly $10,000 on one scope | Step down 5–10 points | Coordination effort does not scale with dollars |
That last row matters. Managing a $20,000 subbed scope is not four times the work of managing a $5,000 one, and a straight percentage on a large sub invoice will price you out of the job. This is the same logic behind material markup by cost band — the markup should decline as the line item gets bigger, because the work of handling it does not grow at the same rate.
The cost almost nobody prices in: insurance gaps
Here is the exposure that turns a profitable subbed job into a five-figure problem a year later. If a sub's workers' compensation certificate has lapsed, was filled out incorrectly, or renewed mid-job without a fresh certificate reaching you, your insurer can treat every dollar you paid that sub as your own payroll at your own class rate during a premium audit — back premium plus surcharges, assessed long after the customer has paid you.
A $2,000 sub payment reclassified as payroll at a trade comp rate can cost more than the entire gross profit on that job. Two practical guards:
- Collect a current certificate of insurance before the sub starts, and set a calendar reminder for the expiry date. A certificate does not carry forward through the sub's policy renewal.
- Keep invoices that break out labor and materials separately. Auditors look for that split, and a materials-heavy invoice is far less likely to be reclassified as payroll.
Four steps to set your own number
- Get your real overhead rate. Total annual overhead divided by total annual revenue. Most specialty shops land between 10% and 15%.
- Find your break-even markup. With overhead rate
vexpressed as a decimal, break-even markup equalsv / (1 - v). At 12% overhead that is 13.6%. At 15% it is 17.6%. - Add your target net. For a target pre-tax net of
n, the markup you need is(v + n) / (1 - v - n). At 12% overhead and a 10% net target, that is 28.2%. Industry benchmark compilations put median specialty trade net profit around 6.8%, with top performers near 12%, so pick a target you can defend. - Adjust by risk band. Use the schedule above to move up or down from that base number, then write the bands down so every estimator uses the same ones.
How to carry subbed work in a price book
The failure mode is predictable: subbed scopes get typed into quotes as free-text line items, priced by whoever is at the keyboard, and never audited. Six months later nobody can tell you what you actually make on subbed work.
Fix it by treating subbed scopes as real catalog items:
- Create a separate category for subcontracted scopes so you can report on them independently of your own labor and materials.
- Store the sub's cost, not just the sell price. Without cost on the item, you cannot reprice it when the sub raises rates, and you cannot job cost it afterward.
- Apply a markup rule to that category rather than pricing item by item. When your sub sends a rate increase, you update the cost and the schedule reprices the sell side in one pass.
- Exclude the category from your standard material markup schedule. Subbed labor is not materials, and running it through a materials cost-band rule will produce the wrong number in both directions.
- Review the category quarterly against actual sub invoices. This is ordinary job costing — estimated versus actual, with the variance pushed back into the price book.
If a sub gets added to a job after the customer already signed, that is a change order, and it should be priced at your full sub markup rather than at cost — see how to price change orders. Keeping all of this in one catalog with cost, markup rules, and an audit trail is exactly what Pricebookr is built for, and it syncs the resulting prices back to Jobber.
FAQ
How much should I mark up subcontractor work?
For field-service trades, 20% to 30% is the realistic range for a typical subbed scope. Long-standing subs on simple, low-risk scopes can sit at 15% to 20%; new subs, warrantied work, or after-hours fill-ins justify 25% to 50%. General contractor benchmarks of 10% to 15% assume a much higher volume of subbed dollars than a service shop runs.
Is 10% markup on subcontractors enough?
Usually not. If your overhead is 12% of revenue, 10% markup on a sub actually loses money, because the invoiced amount still has to absorb overhead. Break-even is around 14% markup at that overhead level, and you need roughly 28% to earn a 10% pre-tax net.
Should I mark up subcontractor work the same as materials?
No. Materials markup is usually banded by unit cost and carries no employment or warranty exposure. Subbed work carries scheduling, quality, callback, and insurance-audit risk, so it needs its own markup rule and its own category in your price book.
Do I have to tell the customer I am using a subcontractor?
Disclosure rules vary by state and by contract, and some residential contracts and licensing boards require naming subs. As a practical matter, telling the customer up front is better business than having them find out when an unfamiliar truck pulls up. It does not obligate you to disclose what you pay the sub — your price is your price.
How do I put subcontracted work in a flat-rate price book?
Create a dedicated subcontracted category, add each recurring subbed scope as an item with the sub's cost stored on it, and apply a category-level markup rule instead of pricing each quote by hand. When the sub raises rates, you update costs and reprice the category in one bulk edit rather than hunting through past quotes.