Markup on small Time & Materials jobs in QuickBooks

Wondering how to handle markup in QuickBooks on small jobs, a reader writes:

I am a contractor that does jobs anywhere from 1k to 500k. Small jobs are often billed at a set labor rate with materials which are marked up 15%. I cannot find any easy way to track materials and add a simple % markup under items. I buy tons of oddball items, and doing set pricing for every item would be impossible. I have been through a couple quickbooks experts, yet no one seems to have any good solutions. They are all either very time consuming or very error prone.

There are a couple of ways QuickBooks offers to handle markup, neither of them useful to this reader:

1. At the very bottom of Edit > Preferences, under Time & Expenses, QB gives you the opportunity to set a Company Preference for the markup to add to Expenses when creating an Invoice.
   I never recommend that a contractor invoice “Expenses” to a client. If you are doing Job Costing right, QB Expenses are overhead, not Job Costs, and shouldn't be added to an Invoice.
2. As you create an Item under Lists > Item List, if you follow my advice all of your Items are two-sided, and you can add a cost and a price to each. The problem for most contractors is that we have too many, as the reader says, “oddball items,” and we don't put price or cost on our QB Items.

Read on for the answer for those of us who need a third option.

In my remodeling business, we use generic Items mapped to the CSI divisions of construction (e.g. 14 – Plumbing, etc.). You need two-sided Items, that is, check the box over the Description field, and map the Income side to an Income account and the “Expense” side to a Cost of Goods Sold account. We leave all the amounts (Cost and Sales Price) blank in our Item list. That much you may already know.

To handle your markup you will need two other kinds of Items: a Subtotal Item, and an Other Charge Item.

The Subtotal is exactly what it says: it totals up all the line Items above it on an Invoice (or an Estimate) up to any previous Subtotal.

[BTW you can nest Subtotals, that is if you do a Subtotal, then a bunch more Items and another Subtotal, then a third Subtotal right after the second one, the last Subtotal will total the previous two subtotals]

You only need one Subtotal Item in your Item list, because all it does is what it says. Give it the name Subtotal and use it wherever you need to add up a bunch of other Items on a form.

Now you can apply your markup to the Subtotal. Create an Other Charge Item. You'll notice an Other Charge can be an amount or a percentage. Map it to an Income account. We have just one Income account in our company: Construction Income, so all our Items map to that on the Income side. Put 15% (or whatever markup you want to use; you can change it on an individual Invoice any time you want) in the amount box, and now you have a markup you can apply to your Subtotal.

You can create multiple Other Charge Items for other uses, and they can be a dollar amount or a percentage. To create an Item that subtracts instead of adding a percentage, create a Discount Item.

You can use a Group Item to hide all this detail from your customer on the printed Invoice, but that's about another two lessons, one on customizing Forms, and one on Group Items. Let me know if you are interested and I'll put them on my blog.

Shameless plug: You can find my training videos (a complete course on Job Costing with Items) at www.qbcontractorsecrets.com