Could marking material up equal losing money?

[readydave8]

I look at the material markup as how I recoup what it costs me to furnish materials, money up front that I could have in the bank, warrantee, putting extra material in my stock, stocking materials in case the supply house is out of what I need when I need it (usually probably 35% of the time I can't get an order completely filled same day), etc. Plus profit for taking care of all this.

What the customer gains is not having to run out 3 times a day to get me material, not having to return extra materials that weren't used, and me taking care of warrantee and changing out warrantee items that I furnished for free (no more cheap GFCI's).

 

[satcom]

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

Best answer.

The problem with many guys new to business, is they fear making money, they relate everything to wages and hours, not earnings and profit.

 

[M4gery]

The problem with many guys new to business, is they fear making money, they relate everything to wages and hours, not earnings and profit.

That's the opposite of what I am thinking. I don't want to be standing there installing a $75 ceiling fan making less profit than if I was installing a $300 fan. If it's the same amount of work, why should I make less profit?

 

[roger]

That's the opposite of what I am thinking. I don't want to be standing there installing a $75 ceiling fan making less profit than if I was installing a $300 fan. If it's the same amount of work, why should I make less profit?

Easy solution, make sure you can sell the $300.00 fan, otherwise be prepared to lose the job.

Roger

 

[SAC]

That's the opposite of what I am thinking. I don't want to be standing there installing a $75 ceiling fan making less profit than if I was installing a $300 fan. If it's the same amount of work, why should I make less profit?

I think a consideration is that the person who is buying the $300 fan might find that it is worth $500 (cost +66%) on their ceiling, but the person who is buying the $75 fan might only find it is worth $175 (cost +133%) on their ceiling. $200 on one job, $100 on the other. Should you turn away the "extra" $100 the $300 dollar fan customer is willing to pay? Ultimately you need to charge "what the market will bear", and different customers will bear different charges. You should turn away jobs that just aren't profitable, but don't turn away jobs where you get to do better than your minimum required profit.

 

[emahler]

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?

good luck trying this T&M...but this is the premise to flat rate...look into it...

 

[wireguy8169]

Did not read all the post so may have already been covered, but if a job comes in over time materials mark up may be what gives you a decent profit...

 

[curt swartz]

I guess I don't understand this topic. Just because the customer does not want top of the line doesn't mean you are loosing money. I would be happy to rough the walls and ceilings of all projects in Rigid instead of NM or MC but customers are not willing to pay the price. I still make money using NM and MC. Most customers want standard white or almond plates instead of 24K gold but I still make money on the devices.

One think I have never quite figured out on this forum is how many members use QO loadcenters for residential. I wire homes in the $1.5-10 million range and the homeowners could careless what manufacture or model of panel I use. They just want the lights to work. I purchase and install whatever the supply house is giving me the best price on at the time. Several years ago we started to rough a fire job and the homeowner who was an electrical engineer stated he wanted a QO loadcenter. I told him I would be happy to use one if he paid the cost difference over the Homeline I was going to use because the insurance company would not pay for the upgrade. He decided the Homeline would be fine.

 

[M4gery]

I would be happy to rough the walls and ceilings of all projects in Rigid instead of NM or MC but customers are not willing to pay the price.

Rigid is lot more work to install, the methods are completely different, it takes longer to do.

The comparison I am using is on material that takes exactly the same amount of work and time to install, items that install the same way.

 

[220/221]

The way I am seeing it, if I install snap switches versus dimmers, I am loosing money by marking material up

You may be making less money, but you are not losing money.

If you charge $4 for a snap switch that cost you 50 cents, you made 3.50 If you charge $20 for the dimmer which cost you $10, you made $10.

Keep in mind that you will likely never have a warranty a simple switch.

Also keep in mind that it cost more money (out of your pocket) to stock the dimmer.

You have to purchase, stock, warranty and account for materials the same way a store/supplier does. On top of that, you have to deliver them to the site.

If you don't mark up materials, you lose money....unless you are getting high enough labor rates to cover all the asociated costs.

 

[220/221]

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 MADE money.

You were going to spend $1000 on the devices and now you are going to spend $200. You give him a credit of $250 and you have just made $650 for writing a simple change order.

 

[Split Bolt]

You may be making less money, but you are not losing money.

If you charge $4 for a snap switch that cost you 50 cents, you made 3.50 If you charge $20 for the dimmer which cost you $10, you made $10.

Keep in mind that you will likely never have a warranty a simple switch.

Also keep in mind that it cost more money (out of your pocket) to stock the dimmer.

You have to purchase, stock, warranty and account for materials the same way a store/supplier does. On top of that, you have to deliver them to the site.

If you don't mark up materials, you lose money....unless you are getting high enough labor rates to cover all the asociated costs.

Hi M4gery, 220/221 hit the nail on the head with the 2 preceding posts. I think the flaw in your thinking is the "losing money" part. You are interpreting "making less money" to be the same as "losing money." That's where you are getting lost with your logic.

 

[ksmith846]

then you are loosing money?

If your money is "loose" you run a greater chance of "losing" it.

 

[nakulak]

That's the opposite of what I am thinking. I don't want to be standing there installing a $75 ceiling fan making less profit than if I was installing a $300 fan. If it's the same amount of work, why should I make less profit?

if you want to have a business model that only involves selling the highest priced items and making the most amount of money possible, and never ever doing a job where material is supplied by others, go for it.

Part of most people's business model, however, it to provide services for a reasonable cost. Sometimes that involves modest material profit, sometimes no material profit when items are supplied by others. The fact is, it is not your money at all until it is in your pocket. If your customers are willing to pay you the same amount of money to supply and install a 75 dollar fan as they are to have you supply and install a 300 dollar fan, you are a much smarter men than I.

 

[fridaymean]

Profit is related to risk. There is more risk installing a $20,000 switchboard than there is with a $1,000 panelboard, or a $200 load center. You should not make the same amount of profit on a load center as you would a panel board.

Don't forget, business does not operate in a vacum. It is not as simple as I want to make a profit on "......" There are to many variables......

 

[satcom]

Profit is related to risk. There is more risk installing a $20,000 switchboard than there is with a $1,000 panelboard, or a $200 load center. You should not make the same amount of profit on a load center as you would a panel board.

Don't forget, business does not operate in a vacum. It is not as simple as I want to make a profit on "......" There are to many variables......

Yes there are, an account we had ordered some switch gear for a paper process plant, the gear was marked up 30% by the sales reps, then another 30% markup by the installing contractor, and also special delivery and staging charges were added, you are right about many variables, companies both large and small, need to mark up material and products, to remain in business.

 

[brian john]

I did a job a few years back for the feds, I was a sub to a sub to a sub everyone in the line marked up my number which had markup in it of course.

The cost of the job was less that all the markups added by all the other folks, who other than doing paper work had NOTHING to do with the job.

 

[satcom]

I did a job a few years back for the feds, I was a sub to a sub to a sub everyone in the line marked up my number which had markup in it of course.

The cost of the job was less that all the markups added by all the other folks, who other than doing paper work had NOTHING to do with the job.

That just made me laugh, every makes money until an electrician gets into the act.

 

[short circuit faulted]

IMHO Mark Percentages are Dictated by Market

IMHO Mark Percentages are Dictated by Market

In electrical residental service go for the gusto, it is true customer can go to orange or blue stores to buy a receptacle for $1 (just example) you on the other hand arrive troubleshoot and change the receptacle and it is $5 (As you brought it with you) and your labor is at least (all costs associated x 50%) your vehicle costs should roll into the labor at established cost plus 15-20%. There are francises that teach these practices, Mr. Elect**** is one that comes to mind. Things to remember is residential service are to provide your customers with service that keeps them calling you instead another contractor. Thing we as electrical contractors have failed on an the HVAC guys are all over it, it to charge for your sevices while on site and that means if you were called out to provide an estimate OR on a service call requiring major repairs, you explain to the customer prior to heading out that there are fees for your service - you set them as reasonable amount to cover the costs of your or your employees time and vehicles. "THERE IS NO SUCH THING AS A FREE ESTIMATE - Either your existing customer pay for your generosity through higher markup or you pay and that means LOSE PROFIT.

Commerical Electrical, you are doing good if you can cover your overhead with 5% profit as markup.

Industrial Electrical, normally at least overhead and 15-20% profit.

All mark ups normall trend differently for different areas of the country.

Unfortunately in the commerial and industrial bid markets, we are seeing folks "buying" jobs at 15-25% below our estimated cost, that is cost less overhead not cost plus overhead.

Those who confuse overhead costs with profits, well it is very much lilke the old analog of beer glass and foam in regards to KVAR. Overhead is what it costs you to stay in business regardless the size of your company. Profits pay bonuses, company paid fringe benifts, and if you are wise a portion goes to interest bearing "emergency fund" to keep you in business when there is no profits to be had OR when someone bits off more than they can chew.

Have a great day all.

Steve

 

[cdslotz]

Markup on material is essential in minimizing your risk on labor.
If the owner furnishes fixtures, gear or other "big ticket" items, I mark up the job AS IF I was furnishing those items.
If my labor hours run over say, 30% because of a crappy GC or other subs that can't perform, which you will find out is easy to do, that markup on materials will be the only way I break even.
I would go into ratios and such, but you will glaze over because it's boring.
Just know that I love jobs with high dollar fixtures, gear, fire alarm, lightning protection, generators, etc.
I mark it ALL up.