Double my cost to get material markup

Pick a truck that you need to operate your business, and then add that to OH. Whether you buy it or not, you still need to add it

I drive a Ram 5500 with a service body. To replace that rig is $110,000. Mine is now 13 years old, and I don’t want to replace it, because you can’t get a manual transmission anymore, so I’m looking at getting a new service body for it instead, fixing some rust on the cab, just got a new turbo installed…..On and on.

Whether it’s a truck payment or maintenance, you’re spending money on a rig, and it better be in OH. It’s just like a storefront for a retail business.

What you personally want is up to you, and that accounts for variations in pricing. Maybe I want to make $120k/year, and guy down the street is happy with $70k. But maybe I work out of my garage, and he wants a shop space in town.

But you must add in something for your vehicle.
 
This is a list of my OH costs: YMMV.

Truck:
It’s either a payment, or maintenance, or both.
Vehicle insurance
Vehicle registration and weight sticker
Fuel

Licenses and insurance:
Contractors licenses
Bond
GL policy

Tools purchase and repair

Office supplies:
This is everything from computer, printer ink, paper, stamps, envelops, if it’s in the office, this where it gets filed under

Code books and training:
New code books every three years, I went and got factory trained by Generac, any CE books, classes, etc

Communications:
Cell phone
Satellite messenger for remote job locations

Truck stock:
Materials that are kept on hand, but not assigned to any one job

Taxes:
This includes what I pay the tax preparer

Clothing:
I put all my work clothing in OH.

Advertising:
For me, it’s mostly logos and truck lettering

And because I have other trucks and equipment, I have a separate category for the dump truck, water truck, tele-handler, skid steer, mini excavator, boom lift, tilt deck trailer, job trailer, dump trailer, etc.

This includes, registration, insurance, repairs, customization.

My absolute two largest expenses are my truck maintenance, and fuel. That accounts for about 30% or more of my yearly OH.

I built myself a shop at the ranch, so I don’t have expenses for shop space. However, I will still look into writing it off.
 
While going down this rabbit hole, this may be an even better question.

Whatever the amount you the contractor would like to have as a salary, would or should one figure half of it as an actual OH expense, and the other half is tied directly to the job?

So, if it ever did happen that you decided to replace yourself in the field, and you are no longer producing, at least you still have an income.

If not how would or do you apply?
 
OK Sparky 93 said:
While going down this rabbit hole, this may be an even better question.

Whatever the amount you the contractor would like to have as a salary, would or should one figure half of it as an actual OH expense, and the other half is tied directly to the job?

So, if it ever did happen that you decided to replace yourself in the field, and you are no longer producing, at least you still have an income.

If not how would or do you apply?
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I would look at paying myself like an employee, including all taxes and benefits, then I would consider my share of the company as overhead or profits. It makes it easier to know how the "worth" of the company when looking at its balance sheet.

I had one friend doing this but he was only paying himself minimum wage.


Edit added the word benefits.
 
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jim dungar said:
I would look at paying myself like an employee, including all taxes, then I would consider my share of the company as overhead or profits. It makes it easier to know how the "worth" of the company when looking at its balance sheet.

I had one friend doing this but he was only paying himself minimum wage.
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Okay! So let’s say as a service company that may only have 1000 billable hours, and you as the owner operator need $65k. 95k to cover taxes. Easy to see cover OH and that salary for $150 rate. How do you apply that if things change and you add a tech or a tech and a helper in the field? I as a tech wasn’t making more than $35/hr. And I know there were times that as a tech of the work wasn’t there you sat, no money coming in. No one can live like that and most likely would go packing.

To keep a guy from walking when there was no money coming in, you would have to make that up, in order to keep them paid up for the year.

Or is my thinking askew?

Now I understand paying a guy $35 and charging $50 for each hour he is on the clock, if those clock hours were a 1000 how do you pay for 2000?

Just trying understand more of the business side of things. You’re not put in a little bit.

I hope this makes sense.
 
Now $15 is like 42% of the $35. Your telling me, that will not cover the 7.65% for SST and the 1-3 or so % each of UE an WC and still have some left for PTO and maybe more.

In potential thousand hours that is an extra $15,000. Surely that covers.

The multiplier I hear thrown around for labor to cover burden has been 1.3 to 1.5.

What am I missing?
And then back to, if I or anyone else was going to pay a guy through the downtimes so the don’t walk, this surely becomes an OH expense.

I guess breaking even would better than losing. How much more if that labor rate would budget to cover those down times?
 
JoeNorm said:
I have been slowly raising my material markup over the last couple years as I have gained confidence in doing so. I started with 40%, then moved to 50%. Those numbers just don't seem to get me where I want to be so lately I have been just 2x for everything except bigger($1K+) items and very small stuff which goes up more. Cut wire I have been doing 3-4x.

Does this seem reasonable? For context it puts a single Lutron receptacle at $40(fresh on my mind). Sometimes I fear the customer or contractor will question it but so far they have not even blinked an eye.

What's interesting is that number is far less than people who use the infamous markup chart that floats around this forum.

I find it hard to believe material markup varies so greatly. Some people are at 20% and some at 500%.

2x for me is a nice easy number and helps get profits where I want them
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My markup personally is 100% on anything under $500 and 50% markup from $500-$1,000 anything after $1,000 is at 30%. Never had anyone question it blink an eye.


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JoeNorm said:
I have been slowly raising my material markup over the last couple years as I have gained confidence in doing so. I started with 40%, then moved to 50%. Those numbers just don't seem to get me where I want to be so lately I have been just 2x for everything except bigger($1K+) items and very small stuff which goes up more. Cut wire I have been doing 3-4x.

Does this seem reasonable? For context it puts a single Lutron receptacle at $40(fresh on my mind). Sometimes I fear the customer or contractor will question it but so far they have not even blinked an eye.

What's interesting is that number is far less than people who use the infamous markup chart that floats around this forum.

I find it hard to believe material markup varies so greatly. Some people are at 20% and some at 500%.

2x for me is a nice easy number and helps get profits where I want them
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Back in the 1980s when I first did service work the owner gave me a pricing book that told me what I should charge for material . He never explained anything . Handed me the keys to the truck and off I went . I believe it had 3 different levels which I still don't understand but I remember the high end GFCI price was $48 . I believe wholesale they were $6 at the time . So a 8 times markup . I got as high a few years back at $75 . So my labor price on that item went down from the high end of that pricing ledger . My overhead was quite low which helped but it appeared i was short changing myself .
If the job was a trouble shooting type repair it was time and materials on many occasions and I would have a itemized breakdown of materials . If it was a bid job I would have no breakdown . I also was flexible on pricing depending on a customers financial situation . Now I did not get rich and famous . I worked in a more rural area so that plays a factor .
 
Seven-Delta-FortyOne said:
I personally do not use Materials markups to cover OH&P. I figure that separately.

For me, it’s too variable and can lead to mistakes.

Also, make sure you separate personal expense's from business. Whatever you may wish to make per year, set that aside for the time being, and figure the business as its own entity.

It may be that in a depressed area, perhaps a rural area, it’s not possible to make what one wants to make. It may necessitate expanding into other areas.

How accurate of a number do you have for your OH? Every business has its Achilles heel, and for a construction company, the thing that sinks them more than anything else, is not knowing, or not recovering, OH.

It’s my opinion that it is very difficult, bordering on impossible, for a small construction company to reliably recover OH, trying to base it off percentage of gross sales. And more than likely completely impossible to do so based of materials markup.
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This can vary depending on what kind of work you do and how much materials (cost wise) you typically use in your normal operations.

The supply house is depending on markups for covering all their expenses, that is primarily what their sales is based on and they may not have any other income sources. Some contractors could possibly have a fair amount of "over the counter" types of sales while others is strictly just installations of their materials.

If you are heavy into service work, you maybe don't sell a lot of materials compared to someone that is heavy in installs.

So the formula of how to mark up is different for everyone.
 
kwired said:
This can vary depending on what kind of work you do and how much materials (cost wise) you typically use in your normal operations.

The supply house is depending on markups for covering all their expenses, that is primarily what their sales is based on and they may not have any other income sources. Some contractors could possibly have a fair amount of "over the counter" types of sales while others is strictly just installations of their materials.

If you are heavy into service work, you maybe don't sell a lot of materials compared to someone that is heavy in installs.

So the formula of how to mark up is different for everyone.
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Yep. Like the example I gave in the earlier post, I will spend 3 days on average on a generator install, and have about 9-10k in materials, between the generator, pad, battery, ATS, wiring, etc, or I could spend 3 days repairing and rewiring an old house, adding a few lighting outlets and 3-way switches, and have probably 5-800 in materials. But not everyone’s business is the same, and each owner will have to figure out what works best for his business.

Which is why I personally use the time-based method for recovering OH.

I also think it tends to be more accurate as virtually all your fixed OH, and a great portion of your variable, is based on time, not percentage of sales.
 
sparky1118 said:
My markup personally is 100% on anything under $500 and 50% markup from $500-$1,000 anything after $1,000 is at 30%. Never had anyone question it blink an eye.


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90% of my residential all will say "But it only cost $X at the big box or online." for even a 10% markup. My commercial customers rarely ever say anything about markup costs, even at 2 times costs.

The resi don't get that I'm carrying the initial costs on my credit, I'm maintaining an inventory carry costs, I'm chasing after the parts, and part of my markup goes to cover incidential materials such as screws, wirenut, crimps, etc. that they will squabble over if listed independently, "nickle and dimeing".
 
Fred B said:
90% of my residential all will say "But it only cost $X at the big box or online." for even a 10% markup. My commercial customers rarely ever say anything about markup costs, even at 2 times costs.

The resi don't get that I'm carrying the initial costs on my credit, I'm maintaining an inventory carry costs, I'm chasing after the parts, and part of my markup goes to cover incidential materials such as screws, wirenut, crimps, etc. that they will squabble over if listed independently, "nickle and dimeing".
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Do you break down your materials on your invoices? I never do. I will break down the days/hours I've worked on those days. However, materials are a bulk number; I don't break that down. I once had an older woman ask me to break down the materials. I told her it really cost me more time to break down the materials and even if I did, the odds of you knowing what each part I used is slim to zero, so there really is no point in doing it. She agreed after I explained that to her.


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electrofelon said:
I make my "employees" members of the LLC so no workers comp, no deductions, etc, it's just their rate. Much simpler. Pretty much everyone in the trades does that around here.
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Again, something that is state specific. But, in general unless the LLC member is 'management' they need WC coverage. A manager member usually has the authority to act on behalf of the company in regards to things like contracts and spending.
 
OK Sparky 93 said:
Now $15 is like 42% of the $35. Your telling me, that will not cover the 7.65% for SST and the 1-3 or so % each of UE an WC and still have some left for PTO and maybe more.

In potential thousand hours that is an extra $15,000. Surely that covers.

The multiplier I hear thrown around for labor to cover burden has been 1.3 to 1.5.

What am I missing?
And then back to, if I or anyone else was going to pay a guy through the downtimes so the don’t walk, this surely becomes an OH expense.

I guess breaking even would better than losing. How much more if that labor rate would budget to cover those down times?
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Labor overhead is about 40-50% of base pay. And that's for my company with 100+ employees where there are more opportunities to absorb those costs somewhere else.
 
JoeNorm said:
I cannot even get materials from my supply house as cheap as they are online. So by those rules I cannot markup materials at all.
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I did let a few customers supply their own materials. It was usually a disaster. "I know you said deep boxes but these were cheaper and look deep enough", "we talked about strip lights but I found these lights on sale. No, I didn't think about light boxes for them", "the store didn't have 12-2 UF cable but the clerk said this 12-2 Romex would be OK to bury.", and on and on. My love of the trade hasn't totally died but it has suffered a lot.
 
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