Basic Law of Mark up

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Guess it's like the old joke:

A guy gets called in to trouble shoot a piece of machinery. He looks at it for about 15 minutes then takes a piece of chalk out of his pocket and marks an X on the machine and tells the mechanic that the problem is right there. He then sends the company a bill for $2005.00. The company is outraged and asks him how he can charge $2000 for a piece of chalk and an X. He says the $5 is for the piece of chalk and the X, the $2000 is for knowing where to put the X.
 
When something is shipped to me I can pay the standard shipping rate and wait 7-days or so for it to arrive or I can pay more for overnight air delivery and get it the next day.

It may be a part I need right away to get a production line up and running that's costing a fortune in downtime.

It's up to me if I want to pay more to get it faster. I wouldn't consider this to be price gouging. I'm paying more for faster service.

If I don't like Fed Ex's price I can check out UPS or USPS to see if I can get a better price. If I don't like any of their prices I can just pay for regular ground shipping and wait. I have a choice.

If a customer doesn't like my price for emergency service he can call one of the 20 other contractors in the phone book and compare my price. They have a choice.
 
Q-So how many electricians does it take to screw in a light bulb?
A-Just one but he charges $72 an hour with a one hour minimum to do the work.

Anyone can change a lamp but I can?t even begin to count the times I got paid just to do this simple task.

By some folk?s views, isn?t that price gouging?
 
$72 to change a bulb is fair, if the customer knows that other electricians are charging about the same amount (more or less) and agrees to it before work starts. If, there has been a hurricane, tornado, flood, earthquake, or the Cubs win the Series, and your price jumps to $195 for changing the bulb, because EVERY other electrician is booked solid due to the dramatic event, then it's gauging.

20% markup is really 120%

$4.99 x 20% = $.99
$4.99 + $.99 = $5.99

$4.99 x 120% = $5.99



I markup 150% on everything.
 
Ever go to the movies and buy a bag of popcorn and a drink?

You're not allowed to bring in your own.

You do have a choice though. You can go without.
 
...but a day laborer can change a light bulb for $5 an hour, but I hear it takes 5 Canadians to change the same lamp.
 
If, there has been a hurricane, tornado, flood, earthquake, or the Cubs win the Series, and your price jumps to $195 for changing the bulb, because EVERY other electrician is booked solid due to the dramatic event, then it's gauging.
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Not if the customer knows the cost up front and agrees to it, it is called free enterprise.

20%=20% and 120%=120%, the 100% you noted is the cost of the original item, 150% just simplifies your math, you tell someone you only charge 150% and they'll accuse you of price gouging.
 
Why do we always seem to be in competition with each other? I was in my code refresher course today (I know I know 1 week to go blah blah blah) and one of the instructors posed this example:

If you call 3 plumbers and tell each that your garbage disposal is dead. You called the electrician he told you to push the little red button which you did and that didn't work. You used a wrench on the emergency crank and it moves freely. You tell him you are having a party tomorrow and you absolutely can't afford to have the disposal broken, how much would it be to come out and replace it tonight or tomorrow morning?

All three prices would be within $5-10.

If you called 3 electricians and told each that you have a breaker tripped that just won't reset. Your next door neighbor knows a little about electricity and he came over and removed the wire from the breaker. You really need him to come to replace the breaker tonight because your boiler is on that circuit and it's going to be 38 degrees tonight, how much would it be for him to come replace that breaker tonight?

The three prices would be up to $100 in difference.

Do you see something wrong with this picture? The plumbers have it together. It costs what it costs to do the job...not more, not less. Do you want it don? Because this is what it costs.

The electricians always seem to be trying to undersell each other instead of simply saying, "It costs what it costs to do the job...not more, not less. Do you want it done? Because this is what it costs."
 
jaylectricity said:
If you call 3 plumbers ...
All three prices would be within $5-10.

If you called 3 electricians ...
The three prices would be up to $100 in difference.
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What???
Are we supposed to take your word for it? I know beyond a shadow of a doubt that I can call 3 plumbers in my area and get prices all over the chart. There's nothing wrong with that.

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Marc here in my area Jays description fits, the plumbers for what ever reason seem much less likely to undercut each other.

As a result the ECs in this area never get as high an hourly rate then than PCs.

Even when they side job they keep the price high.
 
I had a customer call that just had a attic fan installed. There was power already in the attic close to the fan and he just needed the fan tied into it.

He said he called around and got prices from $50 to $300 to have this done.
He wanted me to do the work but wanted to know why there was such a big price range to do this one little 15-minute job.

When I got out there to do the job I had to spend an hour explaining to his wife why I charge more than the $50 guy.
She wanted me to do it for $50.

It's a 100 degrees outside and probably 130 degrees in the attic. I'm not climbing in anyone's attic in this heat for a measly $50.

I had a 45-minute drive in rush hour traffic to get there and another 45-minute drive to get back.

That's one reason the guy that charges $50 can be cheaper. He doesn't have to cover his costs for the time spent explaining why he's not the cheapest. :)

By the way they also wanted this done after 5:00pm so that they wouldn't have to take off from work to be there.

Why didn't they hire the guy who said he would do it for $50?
Because the guy was always too busy to come out and they got tired of waiting for him.
 
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True conversation between 2 plumbing contractors

PC 1 - "Yeah, this year we should be able to take 8 weeks off in April and May to go diving in the Caribbean. Then in Sept/Oct, we'll take 2 to 3 weeks and go watch the leaves change colors. Then we usually take 3 or 4 weeks around Christmas and go see the grandkids."

PC 2 - "we usually only take 8 weeks vacation a year, this year we are hoping to take 10. Maybe in a few years, we'll be able to take as much time as you."



True conversation between 2 Electrical Contractors

EC 1 - "how much do you charge an hour?"

EC 2 - "we charge $x"

EC 1 - "WHAT??? You can't charge that much"


The next time you say "I can do it cheaper than that", catch yourself and think...who really benefits?
 
Bob, you're in Mass IIRC so you know what I mean.

What's funny is I almost added this to the end of my post: "Shouldn't we ALL be able to charge what Marc charges?"

I decided against it, I figured I'd let the post stand and see what kind of responses it got. Funny that my example of "ideal" (a.k.a. Marc) was the one to call B.S.
 
jaylectricity said:
Why do we always seem to be in competition with each other? I was in my code refresher course today (I know I know 1 week to go blah blah blah) and one of the instructors posed this example:

All three prices would be within $5-10.
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In my area plumbers have always been close, just a few montha ago, mother in law, asked if the plumber we use could come over, and look at some work she wants done, she already had two, estimates from other plumbers, and thought they a bit high, one wanted $790 and another estimated it would be around $800, and the plumber we worked with, was $750, so not exactly $5 or !0 but pretty darn close.

Electricians can be anywhere in price for a same type job, and it's not uncommon for them to be more then a $100 apart.

Talking to plumbers with a business, they feel they want to earn more take home income, then if they worked for someone else, one plumber said he was making $25 an hour, plus vacation and benifits, working at his previous employ, and now on his own needs almost twice that to make up for the loss of vacation and benifits. that's $50 just for his pay, not counting any of his overhead expenses.
 
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actually, going back to topic...one of the largest issues is the lack of knowledge that most of us have when we go into business.

How many of us do not know the difference between markup and margin?

How many of us do not really know the difference between gross profit and net profit?

How many of us know what EBITDA stands for?

My point is, if we don't understand the rules of the game, how can we possibly hope to win?

If you want to earn a 20% NET profit, you have to do more than mark up items by 20%...yet, too many of us think that if we mark a $100 item up to $120, we just made 20% profit...

Until we educate ourselves on the rules, we'll keep running in circles...
 
aline said:
Ever go to the movies and buy a bag of popcorn and a drink?

You're not allowed to bring in your own.

You do have a choice though. You can go without.
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Interesting example. Interesting because a cinema's primary sales goal is not related to what the customer perceives as the product they are buying.

Cinema economics work differently to plumbers and electricians. When you go to see the latest blockbuster, at least 60% of your ticket price will go to the film distribution company, who then disburse the money upwards. Cinemas don't make money on showing movies.

But... that popcorn you bought, along with the large coke you were upsold onto: Popcorn costs next to nothing to make (markup is thousands of percent) and post-mix cola is also on a massive markup (as well as tasting nothing like the bottled product). The concession stand is where the money is made, cinemas aim for a customer 'per cap' as high as possible, and use many techniques to try and ensure you spend as much money as possible at the concession stand. Concession income is cinema profit.

Worth mentioning that theres lots of costs to running a cinema, including payroll - cinemas try really hard to keep the per employee cost to under a buck per customer. However, to keep the concessions selling, you need to employ staff, which costs money...
 
Plumbers/Electricians

Plumbers/Electricians

Next time you can get your hands on a copy of the Dodge Report or your local Construction News that lists bid results, take a look at the spreads on the plumbing bids.
In my experience, their numbers are within a couple of points whether the job is 50k or 500k.
Electricians will run anywhere from 10% to 50% different.
For some reason electrical estimating can be all over the place.
Some guys may be able to do a job a little quicker but I attribute the spreads to people just not knowing what they are doing.
I've known plumbers who would walk away from any job that they couldn't get their price for and I've know alot of electricians who would drop their drawers before walking away from a contract.
It may be from prolonged exposure to magnetic fields.
 
petersonra said:
As long as you are not holding a gun to someone's head it is not price gouging. I don't believe there is any such thing as a fair price for anything. The price is whatever the parties involved agree to.

I don't even like the references to price gouging during disasters. People made the choice to live in a hurricane infested area. They made a choice not to be prepared to deal with the aftermath of a hurricane. Why is that suddenly someone else's fault?

If you live in such an area it is your responsibility to be ready for the inevitable disaster. It is not if, it is when. If the vast majority of people already had a small stash of plywood, a generator, and other supplies, there would be no complaining about gouging, because prices would not rise all that much because the demand would not be there. What is really happening is that people who deliberately chose to be unprepared are asking the rest of us to subsidize their lack of preparedness.
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I live in a some what hurricane infested area in NC and I agree that one should be prepared for these events,along with the ice storms in the winter. However,some people do not have the space for storage and some times the means to invest the money for something that is going to set around unused. The main problem during these situations is the "con artist" that come in to take advantage of some one's bad fortune, which in a snowball effect ,can and will affect the local honest contractor. These types of situations I charge what my concise will let me sleep with, sure my rate will be higher than "normal" due to the conditions you work in and running as hard as you can to help. When hurricane Fran hit some years back the poco in my mother-in laws area was going ahead of the repair crews telling the people if they had damage to have it fixed by 3:00pm the next day so they could do the reconnect or it would be several days before they could get back to that area.She then in turn told her friends that "my son in law is an electrician and he's coming to replace the mast on my house" 36 hours later and sending my wife to the supply house 6 times to restock I got home. Did not over charge and have a lot of customers in that area.
 
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