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Thread: Marking up material.....

  1. #1
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    Marking up material.....

    Do you guys have a standard across the board % that you use to mark up material? I add 25% to total material cost no matter what the material is. I have heard that's not enough of a mark up. I heard a good formula to use is.....
    Material cost $0-500 Mark up 100%
    $501-1000 Mark up 46%
    $over 1000 Mark up 35%

    Anyone else heard anything like this? And do you think this is practical?
    VA Master Electrician

  2. #2
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    Quote Originally Posted by chevyx92 View Post
    Do you guys have a standard across the board % that you use to mark up material? I add 25% to total material cost no matter what the material is. I have heard that's not enough of a mark up. I heard a good formula to use is.....
    Material cost $0-500 Mark up 100%
    $501-1000 Mark up 46%
    $over 1000 Mark up 35%

    Anyone else heard anything like this? And do you think this is practical?
    What is more important having the work or making money on the supplies?
    I know that when I sold product through a distributor they were very happy with 20%, on large projects down to 10%. The trick is that they didn't have to stock it. You cost in just handling the transaction such as book keeping and accounts payable should not be overlooked. You may want to consider it in the same way.
    For a given job do you go to distibutor, pick up the product to be installed in a relatively short period of time? Making a quick 20% is easy money. If it is something that you stock you have to consider inventory turns. A product that you may hang on to for months is costing you money until it is sold. The longer that you have it the more it costs you. As such 50-100% markup may not be that unreasonable. But you must consider what the market will bare.
    The goal is to not loose money on your inventory. Compare the cost of inventory to taking that same money and investing it in the stock market. You have to consider the cost of your inventory as an investment and need to have a reasonable return on your investment.

  3. #3
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    I agree it depends on other factors. I'm also curious as to what "markup" means to you. If you buy it for $100, what do you sell it for to get your 25% "markup"?

    Material markup depends on how you recover your overhead. If you recover it more on materials than labor, your markup % will be smaller and vice versa.

    The bottom line of business though is you have to be competitive. So, sometimes holding fast to a 30% markup may cost you the job when if you went down to 24% you might get it. Sometimes you can't get the job even if you sell below your cost. The trick is to really understand your costs and how you recover your overhead.
    Lou (wannabe economist)

    If you relentlessly pursue perfection, you will eventually catch excellence.

  4. #4
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    The easiest answer but the most vague is "Whatever the market will bear". If you're quoting a price for an entire job you really have to be aware of what the pricing trends are of your closest competitors. You'll find that if you start to bump prices up and they don't then you'll start to lose jobs. On the other hand, if you're doing T & M work and you itemize your invoices be thankful if you get 20%.

  5. #5
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    #9 post in this thread Contractorstalk

    This has been posted servaral times in various places, hope this helps!

  6. #6
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    Quote Originally Posted by chevyx92 View Post
    Do you guys have a standard across the board % that you use to mark up material? I add 25% to total material cost no matter what the material is. I have heard that's not enough of a mark up. I heard a good formula to use is.....
    Material cost $0-500 Mark up 100%
    $501-1000 Mark up 46%
    $over 1000 Mark up 35%

    Anyone else heard anything like this? And do you think this is practical?
    25% markup is common, and reasonable.

    right now, i'm starting something that i'm putting 10% markup on.
    given the size of the job, it's reasonable. i'm also not having to carry
    $100k on material for 90 days waiting for a draw. the customer is
    awesome to work for, and THAT makes a significant difference in
    pricing as well, at least for me it does.

    i've also done work for someone where i tripled the material cost,
    and required a 100% deposit before scheduling the work. why?
    the first two checks they gave me, bounced. before i went to pick
    up material, i went to the branch the check was drawn on, and
    had it converted to a cashiers check payable to me.

    your percentage mark up, imho, will cost you some work.
    i'd flat rate all work that i could.
    “Give a person a fish and you feed them for a day;
    teach that person to use the Internet and they won't bother you for weeks.”

  7. #7
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    Also factor where you're getting your material. If you're buying it from the big box stores it's kind of hard to mark something up 25% that the customer can go buy themselfs cheaper. I'm not saying that you shouldn't charge for your time and expense of going and getting the material, which is really all that you are doing.
    I can build anything you want if you draw a picture of it on the back of a big enough check.

    There's no substitute for hard work....but that doesn't mean I'm going to give up trying to find one.

    John Childress
    Electrical Inspector
    IAEI / CEI / C10
    Certified Electrical Inspector

  8. #8
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    I would suggest there is no good answer to this question.

    Your customer does not much care how much you mark up materials or what your labor rate is most of the time. All they really care about is how much the total cost will be.

    Sell the total project for whatever you think you can get and don't worry too much about these kind of things as long as your total costs are covered, including your overhead, and you make some profit.

    The other thing is that many times it is possible to get some kind of deal on parts. IMO, there is no good reason to extend this deal to your customer if you can keep it for yourself. What difference does it make to your customer if you paid $100 for the parts or $75?
    Bob

  9. #9
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    You also need to consider your costs for warranty. If I install something I provided and it fails I have to warranty it at my expense. If something the customer supplied fails it is a billable service call.
    One of the reasons I dislike the big boxes is because they sell a lot of things cheaper than I can buy them at the supply house. It can make it difficult to make profit from materials when the customer can buy stuff as cheaply as I can.

  10. #10
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    I charge what I feel I need to stay profitable. I do not worry what the customer can buy it for, even if it is less than what I sell it for. If $120 an hour is what it takes to live, you sell labor and/or materials to make the $120. The ratio is up to you.
    Tom
    TBLO

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