Could marking material up equal losing money?

[M4gery]

I'm not in business (yet) but I am trying to wrap my head around as much as possible.

I know that most electrical contractors markup material, so there must be a good reason why. However, when I look at it, it seems that it could lead to losing money. So I am trying to figure out if I am looking at this all wrong.

The way I am seeing it, if I install snap switches versus dimmers, I am loosing money by marking material up. If I install normal receptacles versus decora, I just lost money. If I install a Homeline panel versus a QO panel, I just lost money.

If the installation time is the same, why should a contractor loose money when installing a lower cost item?

If you were to move that extra profit from the material markup into the hourly rate, you would make just as much money when installing a $100 versus a $300 fan.

Example: Instead of having an hourly rate of $75 and marking material up X% you would charge retail cost of material and raise your hourly rate to $87/hr (or whatever it would calculate out to). Then you wouldn't make less money when installing 50cent receptacles versus $14 GFCIs.

But since this isn't what is normally done, there must be a fatal flaw in my line of thinking. Any guidance?

 

[iwire]

You lost me, how is not charging markup going to make me more money?

 

[brian john]

You can keep the employees let me sell material at my mark up all day PLEASE.

Panel x cost 100 dollars you mark it up 50%= 50.00 in your pocket
Panel X1 cost 150 dollars you mark it up 50% = 75.00 in your pocket

Service change material cost 1000.00= 500.00 in your pocket
8 hours labor to do the job at 90 an hour =720.00 with labor cost at taxes and bennies you MIGHT pocket 100-200 dollars.

All numbers pulled out of thin air as I know NOTHING about billing residential.

You'll die with just trying to make money from labor.

 

[nhfire77]

Your customers budget and tolerance for quality parts will greatly determine that. Also, your tolerance for warranty work for installing 50 cent snap switches may wear on you.

I personally do not use low budget (economy) parts. But I pick and choose my clients carefully. I explain that I will not cut corners, that includes on parts. I tell them I will understand if they want to save money now and spend more later on repairs and upgrades from worn out parts... and I will have to pass. Of course you have to be delicate about that, and not all clients get that speech.

I have one client that has a spec, with exact part numbers for replacement parts. But, I can use any part I want as long as they are of equal or greater quality. The more expensive parts are what I will use in that case and mark up the same amount, thus making more. I have never been called on price of parts in this case. And I am not doing any warranty work either.

 

[M4gery]

You lost me, how is not charging markup going to make me more money?

Read the part about moving the profit from markup to hourly rate, I gave an example of it towards the end.

By doing that, you wouldn't be losing money when installing less expensive material.

 

[mkgrady]

IF your point is that installing less expensive materials equals less income then you are correct if you are doing T&M work. But your fix for this seems to be to just not mark up materials and charge more for labor.

I'm confused (I think)

 

[M4gery]

Panel x cost 100 dollars you mark it up 50%= 50.00 in your pocket
Panel X1 cost 150 dollars you mark it up 50% = 75.00 in your pocket

Service change material cost 1000.00= 500.00 in your pocket
8 hours labor to do the job at 90 an hour =720.00 with labor cost at taxes and bennies you MIGHT pocket 100-200 dollars.

All numbers pulled out of thin air as I know NOTHING about billing residential.

You'll die with just trying to make money from labor.

Brian, so this is what I am talking about. Customer wanted you to use panel x. Because it is a less expensive panel than panel X1, you just lost $25. Why should you lost that $25? That's my main concern.

$25 isn't that much, but it adds up. How about if you have a simple job of changing out devices. If the customer wants to use normal devices you will make much less money than if the customer wants to use more expensive decora devices. The work is the same, so why should you make less money if they want less expensive devices?

 

[cowboyjwc]

Read the part about moving the profit from markup to hourly rate, I gave an example of it towards the end.

By doing that, you wouldn't be losing money when installing less expensive material.

Actually once the Big orange and blue store opened up all you're really doing when you mark up material is adding to your hourly rate. Why should he pay you $150 for a panel that he can get for $100 too.

The homeowner can go and pick it up for the same price or less than most of us can get it at the wholesale house. Unless of course you're buying containers of material.

 

[mkgrady]

Read the part about moving the profit from markup to hourly rate, I gave an example of it towards the end.

By doing that, you wouldn't be losing money when installing less expensive material.

You have an unusual way at looking at loosing money. Would you say that if you could have charged someone more than you did, then you are loosing money?

 

[brian john]

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.

 

[M4gery]

You have an unusual way at looking at loosing money.

If I bid a job for decora devices thruout a whole house at $1,000 (example).

Then the customer says that they changed their mind and wants normal devices, I just lost money.

If I were pricing only on the labor, I would make the same amount of money whether the customer wanted normal or high end.

Again, I know that my line of thinking goes against what is normally done, I'm not trying to say that I am right, I am just trying to figure out where my line of thinking is off base.

 

[sameguy]

It is called the "bottom line", 10% is $0.10 per dollar no matter how many dollars. Pay scale is another story. You will find that low cost items get marked up more and high price items normally get marked up less. You have to win the bid and to do that you must find what the market will pay. Then you will see that some guys work for 3% over all or free or are paying to work (but don't know it), due to having cash flow and not tracking P&L until they go out of business; yet have dragged the market down with them.
Try to bid a house just per code (your house) get your price then come back and tell us how much you will wire and trim a house.
Then let us know where you will work and you might get sub-contracted due to being so low; unless you turn up way high and lost the bid.
I had an apprentice tell me he was helping a friend wire his kitchen $15hr. I told him to track all his time and travel, in the end he came up making about $7hr.. Easy money haha right.

 

[iwire]

Read the part about moving the profit from markup to hourly rate, I gave an example of it towards the end.

You would never be able to sell your labor at a rate that would equal what you where not making on the material.

By doing that, you wouldn't be losing money when installing less expensive material.

I just don't look at it as 'losing money' either way I am making money for providing the parts.

 

[iwire]

If I bid a job for decora devices thruout a whole house at $1,000 (example).

Then the customer says that they changed their mind and wants normal devices, I just lost money.

No, if you bid the job as decora and install normal you just made money unless the customer wants a credit and even then you should come out on top.


Are you asking about biding work ot doing T&M?

 

[SAC]

In a simplistic way of looking things, if you bill T&M, I'd think that marking up materials can help reduce the downside of a job that goes more quickly than expected. If it is flat-rate billing, I don't see it matters where you bill the cost - other than a psychological effect it may have on the customer (you charged me 50% more than I saw it at big blew!!!).

 

[M4gery]

Are you asking about biding work ot doing T&M?

I've been talking about bidding work.

When doing T&M, I could certainly see why you would want to mark material up, this would allow you to show a lower hourly rate while making that extra money in the markup.

 

[ed downey]

As iwire said. If you bid Decora then then switch to snap switches you should only give back 50% to 70% of the material price in your credit back to the owner.

 

[mkgrady]

I've been talking about bidding work.

When doing T&M, I could certainly see why you would want to mark material up, this would allow you to show a lower hourly rate while making that extra money in the markup.

On a bid job where the customer changes the job from decora devices to standard devices you lose nothing. You only give back the amount you saved by buying the cheaper devices. You might even try to give back only part of the savings if you are creative.

 

[M4gery]

As iwire said. If you bid Decora then then switch to snap switches you should only give back 50% to 70% of the material price in your credit back to the owner.

Ok, so that makes sense in that instance. I was just trying to make a scenario but I believe it's a different situation.

A bit different example, what if you are doing two of the same jobs, maybe it's two separate jobs in the same condo building, both 1,000sqft units. One homeowner wants decora and Hunter while the other wants basic receptacles and Harbor Breeze. In the end you did the same amount of work (or paid your workers to do the same amount of work) but you made less money on the job that wanted the cheaper devices.

That's what I am not following, why would you want to lose on that job, why not charge the same?

I think a couple of business courses are in order before I even think about opening up shop.

 

[roger]

If I bid a job for decora devices thruout a whole house at $1,000 (example).

Then the customer says that they changed their mind and wants normal devices, I just lost money.

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.


Being a "labor broker" is not smart business, sales, sales, sales.

Roger