Avoid Underestimating Material Costs on Custom Bids (Guide)
I remember the first time I realized my side-hustle was actually losing money. I had just finished a custom set of steel table legs for a local client. I charged what I thought was a fair price based on the local steel yard’s website. But when I looked at my bank account after buying the material, a new tank of argon, and a pack of ceramic grinding discs, I had barely made enough to cover a steak dinner. I had spent sixteen hours in the shop for almost zero profit.
Many small shop owners fall into this same trap. We focus so much on the “big” numbers that we forget the small ones. In my sixteen years of running a manufacturing business, I learned that material costs are never just the price of the steel. If you want to grow from a hobbyist to a profitable professional, you have to master the math of what actually leaves your shop in the scrap bin and what gets used up in the sparks.
Establishing a Reliable Raw Material Baseline
A material baseline is the current, real-world price you pay for raw stock, including any hidden fees or transport costs. It serves as the foundation for every bid you send to a customer.
When you are starting out, it is tempting to use the first price you see online. However, metal prices move constantly. I have seen steel prices jump 15% in a single month due to global supply issues. If your bid is three weeks old, you might be buying material at a loss before you even strike an arc. I recommend calling your supplier the morning you send a quote to get a “spot price.”
You also need to account for how you get the metal to your shop. If you spend an hour driving a truck to the supplier and back, that is a cost. If the supplier charges a $50 delivery fee for a small order, that fee must be added to the material cost, not taken out of your profit.
Managing Steel and Aluminum Price Volatility
Price volatility refers to the rapid changes in the market cost of raw metals. This can happen because of trade shifts, fuel costs, or factory shutdowns.
To protect your shop, I suggest adding a “material surcharge” clause to your larger bids. This tells the customer that the price is valid for only 7 to 10 days. If they wait a month to sign the contract, you reserve the right to update the material cost. This isn’t being difficult; it is being professional. In my experience, most clients understand this as long as you explain it upfront.
| Material Type | Typical Price Stability | Recommended Quote Validity |
|---|---|---|
| Mild Steel (A36) | Moderate | 14 Days |
| Aluminum (6061) | Low (Volatile) | 7 Days |
| Stainless Steel (304) | Moderate | 10 Days |
| Specialized Alloys | Very Low | 3 Days |
Handling Supplier Minimums for Small-Batch Work
Supplier minimums are the lowest dollar amount or weight a metal yard will sell without adding an extra “small order” fee.
Most industrial suppliers prefer selling by the ton. When you only need two sticks of tubing, they often charge a premium. I once worked on a small bracket job where the material only cost $40, but the supplier had a $100 minimum order. If I hadn’t checked that, I would have lost $60 instantly. Always ask your supplier about their minimums and plan your purchases to hit those targets by bundling multiple jobs together.
Accounting for Scrap and the Drop Factor
The scrap or “drop” factor is the percentage of material that is purchased but cannot be used for the final product. This includes saw kerf, ends of bars, and offcuts that are too small for future use.
In a perfect world, you would use 100% of the metal you buy. In reality, that never happens. You might need a 48-inch piece of angle iron, but it only comes in 20-foot sticks. If you don’t have another use for the remaining 16 feet, the customer needs to pay for a portion of that “waste.” I have found that a 10% to 20% scrap rate is a safe baseline for most fabrication projects.
Why Your Yield is Never 100 Percent
Yield is the amount of finished product you get out of a specific amount of raw material. It is the opposite of waste.
Think about the “saw kerf.” Every time you make a cut with a cold saw or a bandsaw, you turn about 1/16th to 1/8th of an inch of metal into dust. If you are making 50 small spacers, those cuts can add up to several inches of lost material. If you don’t account for this, you might find yourself three inches short on the last piece of the job. I always buy 5% more length than the drawing calls for just to handle the saw cuts and “squaring up” the ends of the stock.
Tracking the True Cost of Shop Consumables
Consumables are the items that are used up during the fabrication process and cannot be reused. This includes welding wire, shielding gas, sandpaper, and drill bits.
This is where most side-hustles bleed money. It is easy to remember the cost of a $200 sheet of aluminum. It is much harder to remember the $5 flap disc you wore out or the $15 worth of argon you used. Over a month, these “small” items can easily total hundreds of dollars. If you aren’t tracking them, you are paying for the customer’s project out of your own pocket.
Calculating a Consumable Burden Percentage
A consumable burden is a flat percentage added to the material cost to cover the “invisible” shop supplies used during a build.
Instead of trying to count every inch of welding wire, I use a percentage-based system. For standard MIG welding and grinding, I usually add a 10% to 15% “consumable burden” to the raw material total. If the steel costs $500, I add $75 to cover gas, wire, and abrasives. For TIG welding on stainless steel, where gas and tungsten costs are higher, I might push that to 20%.
- Standard Fabrication: 10% of material cost.
- Heavy Grinding/Finishing: 15% of material cost.
- Precision TIG/High Gas Use: 20% of material cost.
- Hardfacing or Specialty Welding: 25% of material cost.
Material Sourcing Strategies for Small Batches
Sourcing is the process of finding and buying your materials from the best possible vendors. For a small shop, “best” doesn’t always mean the cheapest price per pound.
I often see new fabricators spend two hours driving across town to save $20 on a sheet of steel. When you factor in gas and your time, you actually lost money. For small-batch work, reliability and proximity often matter more than the raw price. I keep a list of three local suppliers. One is great for structural steel, one for aluminum, and one for “remnants” or leftovers. Remnant bins are a gold mine for side-hustlers; you can often find high-quality drops for 50% off the retail price.
- Local Industrial Suppliers: Best for full sticks and sheets.
- Online Metal Sellers: Good for small, specialty pieces but watch the shipping costs.
- Scrap Yards/Remnant Bins: Best for small projects with high profit margins.
- Hardware Stores: The absolute last resort. Prices here are often 300% higher than a steel yard.
Analyzing Post-Job Material Variance
Material variance is the difference between what you estimated the material would cost and what you actually spent.
After every job, I sit down with my receipts. Did I buy more steel than I quoted? Did I go through more grinding discs than expected? If I estimated $300 and spent $350, I have a $50 negative variance. This is the best way to learn. If you see the same mistake happening on three jobs in a row, you know you need to adjust your bidding formula. It turns a “mistake” into a data point for future profit.
Common Pitfalls in Material Estimating
One mistake I see often is ignoring the “minimum cut fee.” Many suppliers charge $5 or $10 for every cut they make to get the metal into your truck. If you need ten pieces cut to length, that is $100 added to your bill. Always clarify if the price includes cutting or if you are buying the full 20-foot stick.
Another pitfall is the “rust tax.” If you buy hot-rolled steel, it comes with mill scale. If the project requires a clean, painted finish, you will spend hours (and many abrasive discs) removing that scale. Sometimes, paying more for cold-rolled steel or “pickled and oiled” steel is cheaper in the long run because it saves you on consumables and prep time.
Building a Material Markup Strategy
A markup is the amount you add to the cost of materials to cover the risk of handling, storage, and procurement.
Simply charging the customer what you paid for the metal is a mistake. You had to find it, order it, receive it, and store it. You also take the risk if the material is damaged during the build. I generally apply a tiered markup based on the total material cost. This ensures that smaller jobs, which take more “hassle” per pound, still contribute to the shop’s health.
- Material Cost $0 – $100: 50% Markup.
- Material Cost $101 – $500: 30% Markup.
- Material Cost $501 – $2,000: 20% Markup.
- Material Cost $2,001+: 15% Markup.
Practical Steps for Better Bidding
To stop losing money on materials, start a simple log. Every time you buy a bottle of gas or a box of flap discs, write it down. At the end of the month, compare those costs to the “consumable fees” you charged your clients. If the numbers don’t match, you aren’t charging enough.
Next, create a “Quote Template” on your computer. Include lines for raw stock, a 15% scrap factor, a 10% consumable burden, and your markup. By making this a standard part of your process, you remove the emotion and the guesswork from pricing. You stop “feeling” like the price is right and start “knowing” it is profitable.
Frequently Asked Questions
How do I calculate the weight of steel for a bid? You can use a standard weight chart or an online metal weight calculator. Steel generally weighs about 0.283 pounds per cubic inch. Knowing the weight is vital because many suppliers quote prices by the hundredweight (CWT).
Should I charge the customer for a full 20-foot stick if I only use 5 feet? If the 15 feet left over is a common size you can use for another client soon, you can charge for 5 feet plus a small “remnant fee.” If it is a specialty item you will never use again, the customer should pay for the whole stick.
How do I account for the cost of shielding gas? The easiest way is to track how many hours of “arc time” you get out of a tank. If a $60 refill lasts 10 hours of welding, your gas cost is $6 per hour of welding. Adding a consumable percentage to the material cost is usually simpler for small shops.
What is a “drop” and why does it matter? A “drop” is the leftover piece of metal after you cut what you need. It matters because you already paid for it. If you don’t charge the customer for it, you are essentially giving away free inventory for your next job.
Why is my material cost always higher than my estimate? You are likely forgetting hidden costs like delivery fees, fuel for your truck, saw blades, and the 10-20% scrap rate. Start adding a “miscellaneous material” line item of 5% to every bid to catch these leaks.
How often should I update my material prices? In a volatile market, check your prices weekly. For stable materials like mild steel, a monthly check-in with your supplier is usually enough to keep your bids accurate.
Is it better to buy in bulk or per job? Bulk buying saves money on the “per foot” price but ties up your cash flow. For a side-hustle, I recommend buying per job until you have a consistent product line that uses the exact same material every time.
How do I factor in the cost of a mistake? I always add a “buffer” to my material list. If a project needs 10 parts, I buy enough material for 11. This covers a bad cut or a welding error without requiring a second trip to the supplier.
Should I tell the customer my material markup? No. Your quote should show a “Material and Supplies” total. The markup is part of your business operations, just like the cost of the electricity to run your welder.
What is the best way to track small items like drill bits? Group them into your “Consumable Burden.” Trying to track the wear on a single drill bit is a waste of time. Instead, look at how many bits you buy in a year and make sure your 10-15% burden fee covers that total.
Does stainless steel require a different pricing model? Yes. Stainless steel uses more expensive gas (Tri-Mix or pure Argon), pricier abrasives, and takes longer to prep. I usually double the consumable burden percentage when working with stainless or aluminum.
How do I handle a customer who wants to provide their own material? Be careful. Often, customer-provided metal is the wrong grade, rusty, or poorly cut. I usually add a “Handling Fee” to these jobs to cover the extra time it takes to clean and prep material I didn’t source myself.
(This article was written by one of our staff writers, Michael Hargrove. Visit our Meet the Team page to learn more about the author and their expertise.)
