The last time you handed part of a job to a subcontractor — the crew that did your tear-off, the guy who ran your electrical, the tean that poured your concrete — how much did you actually make on that part of the job?
Not the invoice math. Not “the sub charged me $4,500 and I billed the client $5,000, so I made $500.” The real number, after your time, your risk, and your money sitting in someone else’s pocket for three weeks.
If you’re not sure, you’re not alone. And you might be losing money on your busiest jobs.
Marco Thought He Cleared $5,500. Here’s What He Actually Made.
Marco runs a re-roofing business in Anaheim. Good reputation, the phone rings, six or seven jobs a month. He doesn’t swing a hammer anymore — he sells the job, orders the materials, and hands the install to a labor crew he’s used for years.
A typical job for Marco: he bills the homeowner $16,000. Materials run $6,000. The install crew — his sub — invoices him $4,500. Marco does the quick math in his truck: sixteen minus six minus four-five. “I cleared $5,500,” he tells himself. Feels great.
But here’s what Marco doesn’t put on that napkin. He spent an afternoon on site with the crew, plus two hours on the phone when the homeowner had questions the crew couldn’t answer. When a shingle lifted three weeks later, the homeowner didn’t call the sub — they called Marco. So Marco drove back out, on his fuel, in his truck.
He paid the crew the day they finished. The homeowner’s final check didn’t clear for another 18 days — so for almost three weeks, Marco was $10,500 in the hole on material and labor he’d already covered. And then came the part that really stung: at his workers’ comp audit that year, his insurer noticed the install crew didn’t carry their own coverage. The auditor added the crew’s pay to Marco’s payroll and charged him premium on it — a four-figure surprise he’d never priced into a single job.
Marco’s Napkin vs. Marco’s Reality
The $16,000 job. The napkin said $5,500 in profit.
That $5,500 was never profit — it was gross margin. After his overhead per job and one warranty callback, real profit was closer to $4,300. Then the workers’ comp auditor added his uninsured crew’s pay to his payroll — a bill he never built into a single price.
The money didn’t disappear. It was never put into the price.
Stop Treating the Sub’s Invoice Like the Finish Line
Here’s where I push back on how most contractors think about subs. You treat the sub’s invoice like it’s the finish line. It’s not. It’s a raw material — exactly like a bundle of shingles or a roll of copper. And you would never charge a customer what you paid for shingles. You mark them up. So why are you passing your subcontractor’s labor through at cost, or with a random “little extra” on top?
Two mistakes show up over and over. The first is the straight pass-through: the sub charges $4,500, you bill the client $4,500, and you tell yourself the profit is “in the rest of the job.” It isn’t. You just worked for free coordinating, supervising, and warrantying someone else’s labor.
The second is marking up materials but not sub labor. You’ll add 20% to a $6,000 material order without blinking, then hand over $4,500 of subcontracted labor at cost because “it’s not really my work.” But your overhead doesn’t know the difference. Your truck, your insurance, your phone, your office, your warranty callbacks — all of it gets consumed whether your crew did the work or someone else’s did. Subbing work out doesn’t remove your overhead. Sometimes it adds to it.
| The sub’s invoice | Your cost of goods — treat it like a bundle of shingles, not the final price. |
| The pass-through trap | Billing the client exactly what the sub charged. Zero margin, and your coordination time goes unpaid. |
| Material-only markup | Marking up materials but handing sub labor over at cost. Your overhead gets consumed either way. |
| The fix | Mark up subbed labor 15–35% to cover management, warranty, insurance, and cash float. |
Treat Every Sub Invoice Like a Material Cost
So here’s the shift. Every subcontractor invoice is a cost of goods — treat it exactly like materials. It gets marked up, and the markup has a job to do: it covers your management time, your warranty exposure, your insurance, and the weeks your money floats out there before the client pays.
For most trades, that markup lands somewhere between 15% and 35% on subbed labor, depending on how much coordination and risk you’re carrying. That’s not greed. That’s the price of standing behind work you didn’t physically perform — because when it fails, your name is on it, not the sub’s.
🌴 California Note
Two things California contractors can’t skip with subs. First, collect a Certificate of Insurance (COI) before the sub starts. If your subcontractor doesn’t carry their own workers’ comp, your insurer can add their pay to your payroll at audit time and charge you premium on it — exactly what happened to Marco. Second, know your 1099 and classification rules. Starting with the 2026 tax year, you file a 1099-NEC for any unincorporated sub you pay $2,000 or more in the year (up from the old $600 threshold) — but collect a W-9 up front regardless, because you won’t know until December who crosses the line. And under California’s ABC test (AB 5), if the “sub” works only for you, uses your tools, and does your core service, the state may classify them as an employee, not a contractor — which changes your taxes, your comp, and your liability entirely.
QuickCuenta Coach Tip
Before a subcontractor touches a single job, get two things in hand: a signed W-9 and a current Certificate of Insurance. Then price their invoice the way you price a pallet of materials — as a cost to mark up, never a number to pass through.
🤖 Try This in Claude.ai
Copy and paste this prompt:
“I’m a [trade] contractor. On a recent job I billed the client [total price], paid [material cost] for materials, and paid a subcontractor [sub invoice] for labor. My monthly overhead is about [monthly overhead] and I complete about [number] jobs a month. Walk me through my real profit on this job after overhead, and tell me what markup I should be adding to subcontracted labor to protect my margin.”
Once you see your subcontractor’s invoice as a cost to be marked up — not a number to pass through — your busiest jobs stop being your thinnest ones. That’s the whole game: knowing which jobs actually make you money, and pricing every one of them like you do.
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Ivan Lozada is not a licensed CPA, attorney, or tax advisor. This content is educational only and is not a substitute for professional advice tailored to your business.