Your contractor bid $12,000 for a kitchen remodel. Sounds reasonable. But what if I told you that $3,500 of that is a materials markup you didn't know about?
Here's how it works. The contractor buys $4,500 in cabinets, countertops, and fixtures. They bill you $6,200 for "materials." That's a 38% markup that never appears as a line item. It's just baked into the bid. You paid retail-plus for materials you could have bought wholesale.
The Standard Markup
Most GCs mark up materials somewhere between 15% and 40%. Some go higher. The industry standard is "cost plus 20%" but good luck verifying "cost" when the contractor controls the receipts.
On a $50K rehab where materials represent about $20K of the total, a 25% markup means you're paying $25K for materials that actually cost $20K. That's $5,000 straight out of your margin.
Across a year of 5 flips, that's $25,000 in material markup. That's a deal's worth of profit, gone.
Why This Exists
Contractors argue the markup covers their time sourcing materials, their trade discounts (which they're pocketing, not passing through), delivery coordination, and the risk of material damage or returns.
Some of that is fair. Sourcing materials takes time. But 25-40% for placing orders? That's not a service fee. That's a profit center disguised as a cost.
The Fix: Separate Labor From Materials
At Seller's Little Helpers, we separated labor from materials completely. Here's how it works:
- We provide a detailed materials list with specifications, quantities, and suggested suppliers
- You purchase the materials directly at your actual cost
- We install what you buy for the agreed labor rate
- No markup. No mystery. No bundled numbers.
Or, if you prefer, we purchase materials and provide every receipt for reimbursement at cost. No markup added.
What This Looks Like on a Real Project
Traditional GC bid for a bathroom rehab:
- "Bathroom remodel - $8,500"
- What's materials? What's labor? Who knows.
Our approach:
- Labor: $4,200 (billed weekly)
- Materials list: vanity $380, toilet $220, tile $640, fixtures $480, cement board/thinset/grout $180
- Your materials cost: $1,900
- Total: $6,100
Same quality work. $2,400 less. That $2,400 was markup you were never supposed to see.
The Supply House Advantage
Here's something a lot of newer investors don't know. You can open accounts at plumbing supply houses, electrical supply houses, and lumber yards. Many offer contractor pricing to investors who buy in volume. You don't need a contractor license to open a trade account at most supply houses.
Buy your own materials. Know your actual costs. Stop subsidizing your contractor's profit margin on products you could source yourself.
When Bundled Bids Make Sense
I'll be fair. Bundled bids work when:
- The project is small (under $5K) and the overhead of separate materials purchasing isn't worth it
- You're completely hands-off and willing to pay for the convenience
- You've verified the contractor's markup is reasonable (under 15%)
For most investor rehabs, separating labor from materials saves $3,000-$8,000 per project. That's real money.
The Weekly Draw Connection
When labor and materials are separated, weekly draws become even more powerful. You're paying $4,000/week for labor only. Materials are a separate line item you control. There's no way for the contractor to hide markup in a weekly labor draw because the draw is labor only.
At Seller's Little Helpers, this is our standard model. Labor billed weekly. Materials at cost. Total transparency on every dollar.
Book a $150 scope visit at sellerslittlehelpers.com - we'll show you the line-item breakdown with labor and materials separated so you can see exactly where every dollar goes. Call (708) 536-6700 or email info@sellerslittlehelpers.com.