Marking up material.....

[chevyx92]

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?

 

[templdl]

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.

 

[hardworkingstiff]

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.

 

[goldstar]

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%.

 

[cadpoint]

#9 post in this thread Contractorstalk

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

 

[Fulthrotl]

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.

 

[cowboyjwc]

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.

 

[petersonra]

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?

 

[DaveBowden]

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.

 

[ptonsparky]

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.

 

[PetrosA]

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.

It's tempting to fall prey to that argument, but it's invalid. If the customer wants to buy it cheaper, let them, but then it has to be clear there's no warranty on anything but labor and you need to be on the clock while making up the material list for the cheapskate. This kind of approach taken to the extreme makes work impossible, since buying cheaper could involve purchasing from multiple retailers, online and brick and mortar. Once the customer starts doing that, your labor time will increase with multiple visits, preparing lists of materials, etc.

Aside from being partly the fault of box stores for making so many materials available to Joe Cheapskate at bulk prices, many suppliers are also contributing to the problem by giving people off the street the same prices on some items as contractors pay. I ran into this on a bid for a job involving a 6 meter bank and other large service gear where suppliers didn't even have street pricing calculated in their system and my customer had an account at that supply house (a property management company, not a contractor). There was no way for me to mark up without losing the sale.

 

[ptonsparky]

Rarely do I have a customer that says they can buy something for less. I am sure they can. Most of them could actually do the work we do for them. They choose not to and when that choice is made, they understand it will cost. That said, I have suggested they can purchase items at "Brand Z", especially when I do not want the hassle of warranty on the items. Low end motion control lighting being #1.

 

[Daja7]

I mark up the job not materials, labor includes all taxes etc.
I know the time frame it takes for the job and how much i need for overhead and profit.

Marking up a $.30 cent part 300% just creates more calculation time and paperwork.
and adds virtually nothing to the bottom line in reality. (unless you are sell 1000 of them.) Now i am residential and light commercial. so that may make a difference. When i was industrial we placed a mark up on labor and materials but it was based as all jobs are overhead and profit. and a bid situation.The overall mark up works better in my opinion and works out the same.

 

[petersonra]

I mark up the job not materials, labor includes all taxes etc.
I know the time frame it takes for the job and how much i need for overhead and profit.

Marking up a $.30 cent part 300% just creates more calculation time and paperwork.
and adds virtually nothing to the bottom line in reality. (unless you are sell 1000 of them.) Now i am residential and light commercial. so that may make a difference. When i was industrial we placed a mark up on labor and materials but it was based as all jobs are overhead and profit. and a bid situation.The overall mark up works better in my opinion and works out the same.

I agree. add up the cost of the job and tack on some overhead and profit. it really is not that hard.

 

[LEO2854]

#9 post in this thread Contractorstalk

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

Thanks,that's a great list..:thumbsup:

 

[jcassity]

another strategy is learning what your customer can depreciate across time in taxation.

my estimate on a project may look like a 40/60 split mat & Lab but,, i generally layout jobs in three catagories...
Labor
Materials
Equipment

in some cases customers will desire to shift numbers around to get the labor number lower, and better yet, get the equipment number higher.

makes for a very odd looking estimate,,