First, markup is meaningless until you determine what it is used for, and what is being marked up.
Some contractors, who perform many jobs that are nearly identical, will total up cost and then add a percentage that will then cover overhead and profit.
Using that method when you perform jobs of varying sizes and types can get you in deep deep trouble, though. As I explain in the following threads, a time-based method for overhead is usually more accurate for the vast number of contractors.
Using markup on materials to recover overhead is a quick trip to being out of business. Here is an example: Last week a I did a service call on a non functioning circuit. I found a broken wire and replaced it. Took about 4 hours and I used maybe $40 in materials.
Next week I have a home standby generator to install. These typically take me 3 days. Materials for the generator, pad, battery, ATS, wiring, gas piping, and permit, is around $10,000.
My overhead is roughly $375/day.
If I markup the materials on the half day service call to cover my OH, I mark it up 468%. If I use the same figure for the generator job, it will be a $50,000 job, and no one ever will pay that.
If I markup the generator 10% and the supplies 20%, it maybe $2,000, which is fine.
If I markup the service call materials 20%, I recovered $16 towards the $187 that I actually needed, so I won’t be in business for long.
I markup materials for several reasons, but none of them is to recover overhead. I markup for inevitable extra trip to the supply house because something is on back order. I markup for the fact that I will never account for every screw, nut washer, and strip of tape I will use. I markup because I have years of knowledge and experience that enables me to purchase the proper items. And I markup for the possibility that something may be damaged, maybe by me or my crew, or maybe on site it’s discovered that that part won’t actually work and I need to get something different.
At the end of the day, you will have to KNOW YOUR OWN NUMBERS before you can develop ANY system for pricing. Because until you know what it cost you and your business, to be in business, and do a certain job, any method of sf ft numbers, or pricing by the opening, or hourly with “markup” on something, is like throwing darts upside down and blindfolded. And it probably won’t last long.
Please take a moment to read the two threads linked below.
This is my method, and this is the other sort of lengthy post I put together for the FB Group. I am a General Contractor as well as an Electrical Contractor, and as you will see, it was more geared towards the General’s, but I think it would apply equally to any type of Contractor. Many ways...
forums.mikeholt.com
This is a little thing I put together for a Contractor's FB group I’m on. FIGURING AND APPLYING OVERHEAD: First thing to understand is, figuring overhead is an ongoing task, and it deals with some projections. As the year progresses, projected figures will become actual figures, and you will...
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