Could marking material up equal losing money?

[mtfallsmikey]

If you charge lets say 90.00 an hour a customer might complain when your rates go to 95.00 an hour.

But you buy panel X for a 100.00 and sell it for 160.00 (60% mark up) they will hardly to never say anything. There are always some skin flints that will wine about everything, so you charge them 75% markup.

There's gold in them thar materials.

All of your direct/indirect overhead costs should be covered by your hourly labor rate....the mashed potatoes.

Material markup = the gravy.

Don't be ashamed of your markup. Ask the skinflint customer if The Box Store will deliver the panel/breakers/recps/switches for the same price that is charged in the store.

 

[short circuit faulted]

Mark UP is Relative to the Market -

Mark UP is Relative to the Market -

In the larger jobs (commercial) $ .750K - 6M the MARKUPS are normally EQUAL across the board OH at X% and profit at Y percent, subcontracted services or large ticket items may only recieve the profit markup but all costs are marked up.

It is normally NOT materials that bite you in rear on the bigger jobs it is the LABOR, and if the job goes into a tail spin nine months from completion, get ready to ride one into the ground as tail spinners are normally fatal to profits, overheads and reserve funds.

If we were back in the days of wine and roses with 43% mark ups on labor and 10% on all other costs in a commerial opr industrial CONTRACTED time and material environment this would be a moot conversation point, unfortantely those days have long since pasted us by.
So we must continue in lesser markets operating on a thinner profit margin and hopefully gaining insight as we go.

Have a great day all!

Steve

"The difference between school and life? In school, you're taught a lesson and then given a test. In life, you're given a test that teaches you a lesson."

--Tom Bodett,
American author and humorist

 

[petersonra]

IMO people worry way too much about marking up material. You need to somehow charge enough to make a decent profit. The profit at the end of the year is what matters.

The obsession with maintaining a fixed markup is what has led to the fairly common practice of the GC buying a lot of the expensive items himself. Now instead of the cushy markup, you get nothing, yet you have almost as much pain involved dealing with the material.

There is no magic formula for determining markup on parts. Charge whatever you can get for it. If that works out to 10%, take it. If it works out to 25% take that. Part of the problem is that a lot of people never account for the time spent screwing around with parts. There is a lot of time spent ordering, receiving, and paying for them that is usually hidden in overhead, and if someone else is supplying those parts a lot of times you are losing money on that part of the transaction.

That 25% margin looks pretty good until you look closely at it and realize that you got $25 margin on a $100 item and spent an unaccounted for hour in labor just to get it in the door.

 

[M4gery]

I'm still taking all this in, I appreciate all the responses.

I have one question, a couple people said the following. This is just one quote, but many people said the same thing:

No you haven't lost money, you give them the devices they want under a change order, you deduct the cost of the decora devices excluding the original mark up in the credit back, then you mark up the new material at change order rates.

This was the answer to the question about if you originally bid a job for decora and then the customer changes their mind to regular devices.

So everyone agrees that in that instance you would only give back the cost of the higher material, you would still keep that higher markup that you put on the more expensive material.

So in this case you are essentially making the same thing installing lower cost material as you would it's higher cost counterpart. Why is it viable to do it this way and not from the beginning? Because you already have the customer signed and "at your mercy" so to speak?

 

[cdslotz]

The obsession with maintaining a fixed markup is what has led to the fairly common practice of the GC buying a lot of the expensive items himself. Now instead of the cushy markup, you get nothing, yet you have almost as much pain involved dealing with the material.

Like I said earlier, in this case I will markup as if I was buying the expensive items. I might lose the job because a lot of EC's don't understand markup strategy.
GC's know this and the "winning" EC will have an all-labor, high risk job.

Why would you ever want to handle all of the submittal data, hunt down missing parts, unload and store, warranty materials that a GC bought, and not put a markup on it???

Oh, and you're working overtime at the end of the job because your GC furnished fixtures were ordered late. Then you don't get paid because the owner is pissed at the GC and won't pay the GC and you signed a pay-if-payed contract.
AND IT's STILL ALL YOUR FAULT!

 

[jaylectricity]

So everyone agrees that in that instance you would only give back the cost of the higher material, you would still keep that higher markup that you put on the more expensive material.

So in this case you are essentially making the same thing installing lower cost material as you would it's higher cost counterpart. Why is it viable to do it this way and not from the beginning? Because you already have the customer signed and "at your mercy" so to speak?

That is a good point. It seems to me that I'd rather have a higher markup on cheaper materials because the cheap junk is usually tougher to install. Pay for a good paddle fan and chances are it goes up like the breeze. Get the cheap one and you're fighting to put it together, balancing the blades, etc.

 

[petersonra]

Like I said earlier, in this case I will markup as if I was buying the expensive items. I might lose the job because a lot of EC's don't understand markup strategy.
GC's know this and the "winning" EC will have an all-labor, high risk job.

Why would you ever want to handle all of the submittal data, hunt down missing parts, unload and store, warranty materials that a GC bought, and not put a markup on it???

Oh, and you're working overtime at the end of the job because your GC furnished fixtures were ordered late. Then you don't get paid because the owner is pissed at the GC and won't pay the GC and you signed a pay-if-payed contract.
AND IT's STILL ALL YOUR FAULT!

I am amazed at how many ECs fail to understand how much time and effort goes along with dealing with the materials whether they buy them or someone else does.

 

[kwired]

All of your direct/indirect overhead costs should be covered by your hourly labor rate....the mashed potatoes.

Material markup = the gravy.

Don't be ashamed of your markup. Ask the skinflint customer if The Box Store will deliver the panel/breakers/recps/switches for the same price that is charged in the store.

Ask same customer if he takes his own oil/filter to the repair shop when he gets the oil changed in his car, or if he brings his own food to a restaurant and asks them if they will cook it for him for less than they would normally charge for same food items.

 

[mkgrady]

I'm still taking all this in, I appreciate all the responses.

I have one question, a couple people said the following. This is just one quote, but many people said the same thing:



This was the answer to the question about if you originally bid a job for decora and then the customer changes their mind to regular devices.

So everyone agrees that in that instance you would only give back the cost of the higher material, you would still keep that higher markup that you put on the more expensive material.

So in this case you are essentially making the same thing installing lower cost material as you would it's higher cost counterpart. Why is it viable to do it this way and not from the beginning? Because you already have the customer signed and "at your mercy" so to speak?

The customer doesn't know what you carried for markup on the expensive materials, so they don't know you are keeping it if they switch to cheap materials later. If you start off with big markup on cheap materials you may be out bid and never get the job.

 

[Split Bolt]

Winning bids is a delicate balance, to say the least! Especially in this economy!

 

[electricmanscott]

Ask the skinflint customer if The Box Store will deliver the panel/breakers/recps/switches for the same price that is charged in the store.

Ask them if they think the store is selling to them for what the store paid.

 

[satcom]

Ask same customer if he takes his own oil/filter to the repair shop when he gets the oil changed in his car, or if he brings his own food to a restaurant and asks them if they will cook it for him for less than they would normally charge for same food items.

No they would not try bringing their own oil or filter, because they would be shown the door, and the restaurant would do the same, these business operators are in business to make money, not waste their time with customers looking for a free ride, every product and service gets marked up along the supply chain, until it gets to an electrician.

 

[M4gery]

Ask same customer if he takes his own oil/filter to the repair shop when he gets the oil changed in his car,

That one doesn't work, a LOT of people bring their own oil and get a credit for it. I did it before places started carrying synthetic. A lot of people have their favorite oil that they like to use.

 

[gadfly56]

The customer doesn't know what you carried for markup on the expensive materials, so they don't know you are keeping it if they switch to cheap materials later. If you start off with big markup on cheap materials you may be out bid and never get the job.

I wouldn't be so sure. You need to pause and consider your customer's frame of mind for a second. Why are they asking for the change? Do they need to meet a price threshold in order to bring the job under budget? In that case, maybe you get to keep the markup. On the other hand, if they are looking for substantial savings, it's doubtful he isn't going to have an idea of how much money he should expect back. If I'm Joe Customer going from Leviton illuminated Decora switch ($7.92; all prices Home Depot) and screwless wall plate ($3.28) to a simple toggle ($0.69) and Mulberry metal wall plate ($0.59), for 100 switch locations, that's a retail cost difference of $1,120 vs $128; I'm expecting a credit of at least $992 before I even consider markups. If I figure your markup is around 350% ('cause I troll Mike Holt's Forum, you see :grin: and found mdshunk's markup guideline), I want to see more like $3,216 based on the sliding scale. Or based on several threads, I might see 100% as a likely markup for items like this and say I want $1,984. And all this in about 15 minutes poking around the Web. Customers nowadays aren't ignorant unless they choose to be.

 

[Split Bolt]

That one doesn't work, a LOT of people bring their own oil and get a credit for it. I did it before places started carrying synthetic. A lot of people have their favorite oil that they like to use.

I was going to mention that as well. I was an early synthetic oil user too. Some places would credit some money for the oil, but if it was some super-cheap oil change special, I wouldn't ask for any credit because I know they weren't really making any money anyway! Now everybody has it in stock.

 

[busman]

I've posted this before, but I have this printed up for customers who give me the "I know what this costs at HD, why is it three times more from you?" line:


1) My level of knowledge of product quality/usefulness/ease-of-install was bought with trial-and-error (my time and money) and is worth quite a bit. In other words, I know what to use/not-use.

2) When you buy it from me, it's right there at your house. The things involved in that happening include:

a) Vehicle expense to drive to supply house/store
b) My time to travel and shop
c) Bookkeeping and Accounting costs
d) Inventory time to make shopping lists (to make sure the truck is always stocked properly)
​

3) Other factors

a) Waste (if I buy a 250' roll and have 15' left over it goes to waste)
b) Items involved in installation that are not itemized on the bill

i) Nails, screws, anchors
ii) Connectors, staples, pig-tails, wirenuts
iii) Caulk, duct-seal, tape
​

4) Warranty - Buying from me means that I warrant the item for a reasonable period of time. If something is defective, then it costs me the following:

a) Labor and Travel to replace the part
b) Time and Travel to return the part
​

5) Tools - The cost of replacing tools is really proportional to the amount of material installed and not time spent on a job. Five hours of troubleshooting is no wear on my tools, but virtually every part I use puts some wear on a tool.

If all this doesn't justify a 3x markup on small things and a 1.3x markup on the largest -- well then just buy it yourself and do it yourself.

 

[flyboy]

I've posted this before, but I have this printed up for customers who give me the "I know what this costs at HD, why is it three times more from you?" line:


1) My level of knowledge of product quality/usefulness/ease-of-install was bought with trial-and-error (my time and money) and is worth quite a bit. In other words, I know what to use/not-use.

2) When you buy it from me, it's right there at your house. The things involved in that happening include:

a) Vehicle expense to drive to supply house/store
b) My time to travel and shop
c) Bookkeeping and Accounting costs
d) Inventory time to make shopping lists (to make sure the truck is always stocked properly)
​

3) Other factors

a) Waste (if I buy a 250' roll and have 15' left over it goes to waste)
b) Items involved in installation that are not itemized on the bill

i) Nails, screws, anchors
ii) Connectors, staples, pig-tails, wirenuts
iii) Caulk, duct-seal, tape
​

4) Warranty - Buying from me means that I warrant the item for a reasonable period of time. If something is defective, then it costs me the following:

a) Labor and Travel to replace the part
b) Time and Travel to return the part
​

5) Tools - The cost of replacing tools is really proportional to the amount of material installed and not time spent on a job. Five hours of troubleshooting is no wear on my tools, but virtually every part I use puts some wear on a tool.

If all this doesn't justify a 3x markup on small things and a 1.3x markup on the largest -- well then just buy it yourself and do it yourself.

You'll always have this issue with customers until you sell your labor, instead of the mark-up on parts. Sell parts for 10% over cost plus what you pay for tax. Make up what you need to cover overhead and desired profit by knowing how to calculate your labor for a given task (job).

 

[DaveBowden]

You could also point out that to find a more realistic "retail" price they should check Ace Hardware instead of a place where manufacturers can unload their supply of questionable quality goods. Not quite rejects, not quite seconds, but not first quality.
I had a friend whose wife worked for a company making yellow tools for big box stores. She said when it was time to fill those orders, the plant was closed while they retooled to lower specs.

 

[busman]

You'll always have this issue with customers until you sell your labor, instead of the mark-up on parts. Sell parts for 10% over cost plus what you pay for tax. Make up what you need to cover overhead and desired profit by knowing how to calculate your labor for a given task (job).

I'd have to disagree. I printed that sheet up for the 1% of customers who know what electrical parts cost at the box stores and make an issue of it. The other 99% don't have a clue and I make good money on the mark-up. Customers are MUCH more likely to bitch about labor rates than material costs. They have a hard enough time swallowing labor rates of $90 per hour for service work. I can't imagine if I tried to charge $125-140 to cover the overhead with materials. FWIW, I've been in business for myself for 7 years and very successful with this strategy. Also, I think it's the fair thing to do. Some costs are related to materials and some to labor, it only makes sense to charge for them in the right bin.

Mark

 

[flyboy]

I'd have to disagree. I printed that sheet up for the 1% of customers who know what electrical parts cost at the box stores and make an issue of it. The other 99% don't have a clue and I make good money on the mark-up. Customers are MUCH more likely to bitch about labor rates than material costs. They have a hard enough time swallowing labor rates of $90 per hour for service work. I can't imagine if I tried to charge $125-140 to cover the overhead with materials. FWIW, I've been in business for myself for 7 years and very successful with this strategy. Also, I think it's the fair thing to do. Some costs are related to materials and some to labor, it only makes sense to charge for them in the right bin.

Mark

I agree there is 1% who has a price objection, whether they object to the price of the part or the price of the labor to install the part, I have no data to support. We use flat rate pricing so the 1% who have a price complaint with us have it over the total price of the job.

If you?re charging T&M, I also agree with you that you will have a hard time getting over $90/hr. for service work. That is the inherent problem with T&M.

I do know that you cannot make a profit (at least as I define a profit) at $90/hr, no matter how much you mark up materials. Your labor, which represents your expertise and the exceptional customer service you deliver is the real value in what you have to offer your customer.

Our labor rate is 3.9 times more than yours with a very modest single digit mark-up on material. Parts are practically at our cost plus tax and handling. We don't sell parts and material, we sell our labor, thus, we never get a material or parts price objection.

However, we do get about 10-12% in price objections of the customers we serve. Almost all price objections are handled and resolved with a very small percentage of lost customers.

We have a A+ rating with the BBB. I cannot remember the last time we went to court with a customer. We offer a 100% Satisfaction Guarantee (your not happy, don't pay).

For credibility reasons only, I'll mention we've been in business going on 25 years; 15 of those years on flat rate. Over 24,000 customers of which 4,200 have service agreements. We are on budget to hit 3.9 million in sales and we are trending a 9% net. (13 trucks and 23 employees)

Our business model works...trust me. Customers win, employees win and the owners (me the wife) win.

Flame suit on...