I don't think anyone should be afraid to mark-up mats! Have it right there in the agreement they sign, and go over it with them before they do. "We mark-up ALL material 20%...Billable hours are any hours concerning said project..."
If someone doesn't understand how that works explain it to them, if they don't like it... Tough! It's that or raise your rates, and don't mark-up anything. We do this for money, and if people understand the billing before hand, they either hire you, or look for someone willing to lose money. If they do the later, great, it wasn't your loss. You may not have had the job, but you didn't lose at it.
Sorry, this is a sore subject with me, as current employer often takes jobs lower than his original bid, because somebody low balled. Then whines to me about it, when he knew it was a looser to begin with.
A Company I used to work for had a rate plus mark-up, and a higher rate with no mark-up (And clock every minute you even think about the job, material handling too.). With a little explanation of what that mark-up covered. Once the customer understood how it worked, (maybe to thier advantage, if fixtures or high cost items were involved) many choose the higher rate! They say to themselves, "I pay high rates, but I'm not paying bluebook column #2 for a GFI!"
