Material Markup

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Greg Swartz

Greg Swartz

Senior Member
Location
Colorado Springs, Colorado
I know that this thread has been started before, but...

How much do you markup your material?
Do you charge sales tax?

Currently I only mark up my material about 18%, and rarely charge sales tax. I do have a sales tax license, but would rather just pay the tax up front, and mark up the material more, and not have to worry about paying the city, county, and state sales taxes.

But I have been told that my 18% is low... quite low.
 
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wireguru

Senior Member
someone here had a great spreadsheet showing a markup scale for everything from $1 to $100,000. Basically 500% for a $1 receptacle, and 10% for 100k in switchgear...something like that
 
mdshunk

mdshunk

Senior Member
Location
Right here.
wireguru said:
someone here had a great spreadsheet showing a markup scale for everything from $1 to $100,000. Basically 500% for a $1 receptacle, and 10% for 100k in switchgear...something like that
Click to expand...
I've seen that one too. I think something along that line is a pretty good idea.
 
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emahler

Senior Member
greg, whatever percentage you decide on, use the margin and not the markup...

i.e.- you choose 25%...meaning you want to make 25% gross profit on the sale of that material...

so, if you have $100 worth of material (including sales tax), you would divide $100 by (100%-25%)..

or

100/0.75 = $133.33

why this way? and not just $100 x 1.25?

well, simple....25% of $125 = $31.25....so you don't make 25% gross on the material, you actually only make about 20% gross...

but 25% of $133.33 = $33.33....so you actually make 25% gross...

might not seem like a huge issue..but do $100,000 worth of material over the year and the difference to your bottom line is around $8,300....
 
S

satcom

Senior Member
Greg Swartz said:
That's the whole thread. Thanks!
I forgot that I even posted on it!

Just curious, how do you all feel about the sliding scale multiplier markup?

Greg
Click to expand...

My thought is, when your in business, not playing contractor, or working side jobs, you need to mark-up to cover costs, and make a decent profit on all material, and all projects, and all service work.
 
Greg Swartz

Greg Swartz

Senior Member
Location
Colorado Springs, Colorado
Huh?

Huh?

emahler said:
greg, whatever percentage you decide on, use the margin and not the markup...

i.e.- you choose 25%...meaning you want to make 25% gross profit on the sale of that material...

so, if you have $100 worth of material (including sales tax), you would divide $100 by (100%-25%)..

or

100/0.75 = $133.33

why this way? and not just $100 x 1.25?

well, simple....25% of $125 = $31.25....so you don't make 25% gross on the material, you actually only make about 20% gross...

but 25% of $133.33 = $33.33....so you actually make 25% gross...

might not seem like a huge issue..but do $100,000 worth of material over the year and the difference to your bottom line is around $8,300....
Click to expand...

I'm following your numbers, but I'm not following your concept.
If I pay $100 for material (after all taxes) and I charge 25% markup on it, I am making $25 profit... right? $25 on $100 is 25%... isn't that gross? (No pun intended :cool:)

Am I understanding correctly that the "margin" is actually above the gross?

Confused,
Greg :-?
 
Greg Swartz

Greg Swartz

Senior Member
Location
Colorado Springs, Colorado
satcom said:
My thought is, when your in business, not playing contractor, or working side jobs, you need to mark-up to cover costs, and make a decent profit on all material, and all projects, and all service work.
Click to expand...

I was meeting with my business coach last night, and this topic came up.
She told me to raise my markup... So, I came here and asked.

My thought process is that we need to cover the costs, and make money too... I agree.

But another question is: Do we warranty the material we installed, or only the labor?

I think that since we are making a markup on the material, we need to warranty the material too...

Thoughts?
Greg
 
busman

busman

Senior Member
Location
Northern Virginia
Occupation
Master Electrician / Electrical Engineer
This is what I had posted before and it's what I give my customers if they start comparing my material prices to those at the box stores. You really NEED significant markup to cover the REAL costs of providing the right materials at someones home/business.

1) My level of knowlege of product quality/usefulness/ease-of-install was bought with trial-and-error (my time and money) and is worth quite a bit. In other words, I know what to use/not-use.

2) When you buy it from me, it's right there at your house. The things involved in that happening include:

a) Vehicle expense to drive to supply house/store
b) My time to travel and shop
c) Bookeeping and Accounting costs
d) Inventory time to make shopping lists (to make sure the truck is always stocked properly)

3) Other factors

a) Waste (if I buy a 250' roll and have 15' left over it goes to waste)
b) Items involved in installation that are not itemized on the bill
i) Nails, screws, anchors
ii) Connectors, staples, pig-tails
iii) Caulk, duct-seal, tape

4) Warranty - Buying from me means that I warrant the item for a reasonable period of time. If something is defective, then it costs me the following:

a) Labor and Travel to replace the part
b) Time and Travel to return the part

5) Tools - The cost of replacing tools is really proportional to the amount of material installed and not time spent on a job. Five hours of troubleshooting is no wear on my tools, but virtually every part I use puts some wear on a tool.

6) Time Cost of Money - All the money I have tied up in materials is NOT in a bank earning interest.



Mark
 
S

satcom

Senior Member
busman said:
This is what I had posted before and it's what I give my customers if they start comparing my material prices to those at the box stores. You really NEED significant markup to cover the REAL costs of providing the right materials at someones home/business.

1) My level of knowlege of product quality/usefulness/ease-of-install was bought with trial-and-error (my time and money) and is worth quite a bit. In other words, I know what to use/not-use.

2) When you buy it from me, it's right there at your house. The things involved in that happening include:

a) Vehicle expense to drive to supply house/store
b) My time to travel and shop
c) Bookeeping and Accounting costs
d) Inventory time to make shopping lists (to make sure the truck is always stocked properly)

3) Other factors

a) Waste (if I buy a 250' roll and have 15' left over it goes to waste)
b) Items involved in installation that are not itemized on the bill
i) Nails, screws, anchors
ii) Connectors, staples, pig-tails
iii) Caulk, duct-seal, tape

4) Warranty - Buying from me means that I warrant the item for a reasonable period of time. If something is defective, then it costs me the following:

a) Labor and Travel to replace the part
b) Time and Travel to return the part

5) Tools - The cost of replacing tools is really proportional to the amount of material installed and not time spent on a job. Five hours of troubleshooting is no wear on my tools, but virtually every part I use puts some wear on a tool.

6) Time Cost of Money - All the money I have tied up in materials is NOT in a bank earning interest.



Mark
Click to expand...

Good Post Mark!

The average customer, usually is an employee, and has no real sense of what it costs to operate a business, they think they know, and assume all the money you collect is profit, if they only knew many service type business, make $6 to 10 profit on every $100

This past week I was talking to a auto repair shop owner, he said they get people that come in and say they will bring their own parts, he just holds the door open so they can exit fast, he said they need up to 400% mark-up on some parts, and even with that they can still come out on the loosing end.
 
S

Sparky555

Senior Member
Greg Swartz said:
I'm following your numbers, but I'm not following your concept.
If I pay $100 for material (after all taxes) and I charge 25% markup on it, I am making $25 profit... right? $25 on $100 is 25%... isn't that gross? (No pun intended :cool:)

Am I understanding correctly that the "margin" is actually above the gross?

Confused,
Greg :-?
Click to expand...

It's a little easier if you look at it from $100.

OK. You have a $100 job & you want to make $25, so it's $75 for the job & $25 profit. Right!

$75 X 1.25 = $93.75???

What you want is:

$75 / .75 = $100.00!!!
 
A

arnettda

Senior Member
emahler said:
greg, whatever percentage you decide on, use the margin and not the markup...

i.e.- you choose 25%...meaning you want to make 25% gross profit on the sale of that material...

so, if you have $100 worth of material (including sales tax), you would divide $100 by (100%-25%)..

or

100/0.75 = $133.33

why this way? and not just $100 x 1.25?

well, simple....25% of $125 = $31.25....so you don't make 25% gross on the material, you actually only make about 20% gross...

but 25% of $133.33 = $33.33....so you actually make 25% gross...

might not seem like a huge issue..but do $100,000 worth of material over the year and the difference to your bottom line is around $8,300....
Click to expand...

I do not get the difference but I am changing the way I calculate my mark up. Thank you!
 
E

emahler

Senior Member
Greg Swartz said:
I'm following your numbers, but I'm not following your concept.
If I pay $100 for material (after all taxes) and I charge 25% markup on it, I am making $25 profit... right? $25 on $100 is 25%... isn't that gross? (No pun intended :cool:)

Am I understanding correctly that the "margin" is actually above the gross?

Confused,
Greg :-?
Click to expand...

very simple...you begin the year thinking "I'm gonna make 18% profit on my material"...so you charge $1.18 for every $1.00 of material you install...at the end of the year, your have purchased, and sold, $100,000 worth of material...you marked it all up 18%...so you have income of $118,000 on that material...

so what is your gross profit, as a percentage?

$18,000 / $118,000 = 15.25%...but you planned on 18% profit...how did you only get 15%? now you missed your budget....

does that make a little more sense?
 
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