Markups on Building Materials

Lumberyards charge low markups on basics like wood and drywall, but high markups on accessories, tools, paint, et cetera. June 11, 2012

Does anyone know what the typical markup is for softwood lumber (2x4, 2x10, ect.) at lumberyards (home building material)?

Forum Responses
(Business and Management Forum)
From contributor R:
It varies: 2x4, 2x6, 2x8 SPF and fir 8-20' is usually 20%.

2x10 2x12 SYP- 20-25%.

Studs - big quantity items the builders usually focus on and shop hard -10%.

Plywood/OSB - 15%.

It’s not much considering the equipment necessary, racking, trucks, labor, etc.

From contributor J:
Their deals are made in the brokering on bring the materials in, more so than markups getting the materials out.

From contributor A:
How could a company pay its overhead and still make a profit with markups of only 10 to 20%?

From contributor C:
To contributor A: By trying to keep your overhead low, which every business does. Also keep in mind they are selling millions in sales. Our breakeven was about 1.7M in sales, with a 23% GM which made our overhead about 32,500 per month. It is a tough business and our motto was "if Lowes, Menards, or Home Depot does it, we won't". If you think cabinets are cutthroat, wait until you own a lumber yard. Focus on your design skills, you’re thinking outside of the box, and when I say box I mean Lowes, etc. They are retail, you are too, but don't let your customer know that.

From contributor Z:
Before I started my own business I was a lumber buyer for a lumber company. Our markup was 20-28% depending on width and length. Consider the volume and the amount of it you can deliver at one time. To put all that lumber together you need other things - nails, glues, screws, joist supports, etc. These items all have markups in the 40% range. Then we go inside – paint. It will most likely be 100% or more. Mouldings - 60% or more, and ceiling tile 50% or more. They make money and lots of it.

Other things that don't have large markups are fiberglass insulation, sheet rock, standard windows, and doors. Then again the dollar amount you can deliver of these products at once allows you to make money.

From contributor S:
To contributor A: Without getting into a detailed discussion of accounting, 15% to 22% is the usual markup for all medium to large businesses. If I calculate my markup after all COGS (before non-COGS overhead) then I get around the same numbers. If you calculate based on the raw materials cost, that will give you a very different number that is much higher. The lumber yard does not have this kind of expense. Our expenses are mostly COGS theirs is mostly material for re-sale and overhead. We include the COGS in our cost to manufacture which should bring the markup percentage into the 10 to 20% range.

From contributor F:
I don't know the lumber markup, but I did spend a few years working for one of the box stores. I remember a manager explaining that they didn't make any money at all on wall board. They sold it less expensive than everyone else to get you in the door. As eluded to, they make their money on other things.

Power tools had a decent markup, but what I really remember was accessories. Items like blades and drill bits were well over 100% markup. I don't know but I'd have to guess fasteners would likely be in that range as well.

From contributor A:
We probably have a lot of things listed as overhead that others put under COGS, like electricity and machine maintenance, (this way thanks to our accountants and my accountant on staff) so our markup is about 53%, but overhead is very high. It takes a good amount of work for us to make a profit! We still pay a lease, not a mortgage - ouch. This is a very machinery and labor intensive operation, unlike a straight box making operation. We are only doing about two thirds the volume of what we were doing three years ago. I only wish that overhead was 10-15% of COGS!

From contributor A:
There is such a disparity between what you guys are stating and what I see here that I am compelled to list some items we have under overhead:

- Administrative payroll (my salary, customer service, accounting, human resources) - 10% of COGS.

- Auto insurance, bank service charges (Visa, etc.), depreciation expense - 2.5% of COGS.

- Worker’s comp, medical benefits, all payroll taxes - 8.6% of COGS.

- Rent - 7.2% of COGS, obviously would be much lower at higher volumes of output.

- Electricity - 4.9% of COGS, would also is much lower at higher volumes, under demand metering, and most major machines still run same hours regardless.

- Telephone and garbage disposal - 2.1% of COGS.

Right there is 35% of COGS. These figures are from last month, other miscellaneous overhead costs are about another 4% of COGS. I'm guessing if you are only marking up 20% of COGS, you are putting many of these items under COGS?

From the original questioner:
I have heard that softwood has very low margins so you it may be a loss leader for some yards as some of you have suggested.

From contributor A:
To contributor C: you say your overhead is 390K (32,500 x 12 months), which makes your COGS $1,310,000. Right there at breakeven, you have to have a markup of 29.8% to breakeven. So I do not understand your response to my question "How could a company pay its overhead and still make a profit with markups of only 10 to 20%?" Your own numbers refute your response.

Forgive me, but I'm just trying to understand how you all are coming up with such numbers. So yes, Contributor S, I would like a detailed description of accounting if that is what it takes to get to the bottom of this. I've had two semesters of accounting, broke the curve, professor tried to get me to change my major to accounting, been in business 18 years, and you guys have lost me on this one.

From contributor C:
Yes the COGS is 1,310,000 (23%) plus our overhead at 390K which equals a breakeven point of $1,700,000. Or take our overhead and divide it by our GM. 390K/.23 equals a $1.7M breakeven. Am I not seeing what you are trying to say?

From contributor C:
Contributor A - this started with a conversation about lumber yards and that is where these numbers came from. As for the 10-20%, you could make money with enough sales, but it would be tough. All of the % numbers are referencing sales, not COGS, 29.8% markup is the same as 23% margin.