If you’re a builder or trades business, you probably keep an eye on day rates and quote totals.
There’s a quieter problem that destroys profit in the background: under-recovering materials and labour.
When materials cost recovery isn’t built properly into your construction pricing, you can look busy, have cash going through the bank and still be working for free (or very close to it).
Where Builder Profit Leaks Really Happen
Most builder profit leaks aren’t dramatic. They come from lots of small “it doesn’t really matter” decisions that add up, such as:
- Charging only the merchant invoice for materials, with no allowance for wastage, delivery or credit terms
- Not charging for time spent collecting, ordering, returning or sourcing materials
- Under-estimating labour by “a day or two” to win the job
- Allowing variations and extras on site without updating the price
- Covering small items yourself – screws, fixings, silicone, blades because they “feel too small to bill”
Each one seems minor. Together, they quietly erode your margin on every job.
The Real Cost of Materials (Not Just the Invoice)
When you look at a materials invoice, it’s easy to think, “I’ll just pass that on to the client.”
But the real cost of materials is often much higher than the number on the page.
Things that should be included in your materials cost recovery:
- Purchase price – the merchant invoice
- Wastage and breakage – off-cuts, mis-cuts, damaged items, over-ordering
- Delivery charges – merchant delivery or your own time and fuel collecting
- Admin time – specifying, pricing, ordering, checking and chasing
- Credit terms and cash flow – the fact you often pay out before you’re paid
- Small consumables – fixings, sealants, tapes, blades, PPE, etc.
If you only recharge the invoice amount, you’re quietly subsidising the job out of your own pocket.
The Hidden Cost of Labour
Labour under-recovery is just as damaging as materials.
Most builders think about labour in days on site. But a realistic labour cost needs to allow for:
- Actual paid hours – including set-up, clear-down and breaks
- Travel and collection time – getting to site, going for missing materials
- Supervision and snagging – checking work and returning to fix issues
- Quote and paperwork time – surveys, pricing, invoices, chasing payment
- Overheads – vans, insurance, tools, software, phones, office costs
If your day rate only covers the time “on the tools”, all the other time you work is effectively unpaid.
What “Working for Free” Looks Like in Real Life
On paper, a job might look fine: the price feels sensible, the client is happy and the team is busy.
But once the job is finished and you quietly compare:
- What you thought materials would cost, versus what they actually cost
- How many days you allowed, compared with how many days you actually spent
- The extra trips to merchants and extra time on variations that never got added to the bill
…it’s common to find that the true profit on the job has shrunk to almost nothing.
You’ve carried the risk, paid the wages, juggled the cash flow and ended up with a return that doesn’t reflect the effort or the stress. That’s what “accidentally working for free” looks like.
How to Protect Your Margin on Every Job
To stop these builder profit leaks, your construction pricing needs to:
- Build in a proper materials margin
Include wastage, delivery, admin time and a sensible mark-up for handling the risk and hassle of materials. - Factor in all labour time, not just on-site time
Travel, collections, quoting, snagging and admin should all be covered within your rates. - Set a target profit margin and stick to it
Decide the minimum margin you will accept and price to achieve it – not just to “win the job”. - Treat small items as part of the job cost, not a freebie
Either allow for consumables within your rates or make sure your materials cost recovery includes them. - Review your numbers regularly
Compare quoted vs actual materials and labour on completed jobs. Wherever you see a leak, adjust your pricing and process.
Next Step: Check If You’re Working for Free
If you’re flat out but not seeing the profit you expect, it’s very likely your materials cost recovery and labour pricing need attention.
A simple next step:
- Pick a handful of recent jobs
- Compare what you quoted for materials and labour with what you actually spent
- Ask: “If I did this job again on the same terms, would it be worth it?”
If the honest answer is “no”, that’s a clear sign your pricing model is helping others more than it’s helping you.
If you’d like help reviewing your construction pricing and stopping these profit leaks, we can go through your jobs with you, in plain English, and build a pricing approach that protects your margin instead of giving it away.
Please see another An Accounting Gem blog: https://www.aag-accountants.co.uk/electric-cars-and-the-2025-budget/
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