Material Markup

[Mule]

I charge any where from 10% to 30% depending on the value to the customer, quanity, and/or buying power of the customer. I also charge a min. fastener charge per day, and a trip charge per day.

Like today, a regular customer calls me and wants a 75kva dry 480-120/208 transformer. I pick up the phone and request a quote, about a hour later the customer comes back where Im working and said he found one for $2000 .....So I call my supplier back, and he prices me a Jefferson for $1900. So I add a $100 and tell him, if he buys it, Im out of the loop for warranty, he will have to deal with the manufacturer,and I really dont care if he takes it not.... I dont like doing business like that, but the customer sometimes has buying power,and theres nothing you can do about it....

 

[220/221]

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

First, 18% is nothing. 100% minimum unless it's a piece of equipment worth several thousand dollars. A 25 cent cover plate gets marked up at least 300%.
If you install a recesses can, you make under 2 bucks on it? Why mark it up at all? One warranty call or broken hanger bar will eat up the profit you thought you made on quite a few cans.

Second, if you are marking up the materials (T & M), you must pay the difference in sales tax.

Third, If you are doing a contract job, the materials are assumed by the state (here in AZ) to be X (35)percent of the job and you must pay sales tax on that amouint instead of what the actual amount is.


Warranty here is two years on installations and MFG warranty on parts.

 

[Mule]

Warranty here is two years on installations and MFG warranty on parts.

I'm curious, what do you mean by this statement? is this a requirement by a government enity? Or, is it, the warranty your company offers....?

 

[cadpoint]

I want to thank everyone here that contributed to the thread and presenting a correct understand of Billing !

 

[480sparky]

I'm curious, what do you mean by this statement? is this a requirement by a government enity? Or, is it, the warranty your company offers....?

I think me means the material is warranted for the manufacturer's one-year period. Workmanship (labor) is covered for two.

 

[emahler]

I want to thank everyone here that contributed to the thread and presenting a correct understand of Billing !

has that actually occurred?

 

[cadpoint]

I want to thank everyone here that contributed to the thread and presenting a correct understand of Billing !

has that actually occurred?

LOL, I was explaining this Thread to my Bride, I had to also state to her first that my understanding or even grasp of percentages was way OFF!

I filed it away, and I promised to go over it with her!
She got a Masters in Math, But I still got a glazed look as I struggled to explain...

 

[kb8713]

OK! Here it goes
Your profit margin is is based on a % of your retail price and not your cost.
$100/.7= $142.86 Profit $42.86
$100 x 1.3 = $130.00 Profit $30.00

Most retailers use:
(Retail - Cost)/Retail = Profit Margin

($142.86(retail) - $100.00(cost))/$142.86(retail) = 30%(profit margin)

 

[Mule]

So, If I invest $100 in your company, and you pay me a $20 dividend, what was my rate of return? ROI? Im not being smart, truely curious

 

[emahler]

So, If I invest $100 in your company, and you pay me a $20 dividend, what was my rate of return? ROI? Im not being smart, truely curious

Your ROI would be 20%......but that is because you are basing it on the money you invested, which is $100...

but your profit % would be $20/120 = 16.7% margin

when determining your selling price, you need to know your profit as a percentage of your sales, not as a markup of your costs...

for example, you plan to make $1,000,000 in gross sales...you plan on 30% labor, 30% material costs, 20% overhead and 20% profit...

what would your dollar amounts be for each of the items?

$1,000,000 x 0.30 = $300,000 for labor and material....

$1,000,000 x 0.20 = $200,000 for overhead...

this gives us $800,000 in cost...

now, if you were to use the markup method of way to many contractors, you would simply take this $800,000 and multiply by 1.2...

$800,000 x 1.2 = $960,000...
$960,000-$800,000 = $160,000
$160,000 / $960,000 = 16.7%
wait a second, when i marked up my costs by 20% why didn't it come out to $1,000,000?

now, if we take that $800,000 and divide by the difference of 100% - 20%....or 80%....we get this...

$800,000 / 0.80 = $1,000,000

so, if we know that our labor, material and OH will cost us $800,000 and we want to make 20% net profit, we need to divide all our expenses by 0.8 to arrive at the gross we need to generate.

 

[cadpoint]

Don't look at me, I already shoot my flair on this one...!!!!

Look Here for retail math

Your first equation if you 100 / 142.87 gives you .6999 right at your thirty percent. and you questioned 30 dollors at the end ?

Profit margin
Mark Up % = (Selling Price - Cost) x 100 / Cost

Mark Up % = (49.95 - 30.00) x 100 / 30.00 = 66.5%

But I'm going to throw out another term gross margin

Gross margin
GM % = (Selling Price - Cost) x 100 / Selling Price
Example: You sold an item for $49.95, and the cost of the item is $30.00.

GM % = (49.95 - 30.00) x 100 / 49.95 = 39.94%

two very similar equations but different

I'm not a retailer or a wholeseller, I don't think most EC's are either,and I'm not one of those either

 

[kb8713]

So, If I invest $100 in your company, and you pay me a $20 dividend, what was my rate of return? ROI? Im not being smart, truely curious

ROI is 20%
But we are not talking about investments.

Ask any retailer, accountant or banker how they calculate markup and you will discover it is always based on retail price.
PS- Quick books also calculates markup based on retail.

 

[FlyFish]

Here's a great book. Contractors need to calculate their overhead before setting a markup. The book is cheap and well worth it.

http://www.markupandprofit.com/books_mark.html

 

[Mule]

ROI is 20%
But we are not talking about investments.

Ask any retailer, accountant or banker how they calculate markup and you will discover it is always based on retail price.
PS- Quick books also calculates markup based on retail.

Oh I understand, and Im not trying to be smart....Its just think we over complicate the issue. And furthermore my customer would be offended if I charged by the other way.

To me I invest $100 in materials at the supply house, I sell it to the customer, and bang I get $120, I get my $100 back and my ROI is 20%...its real simple. The retail community has just about burned themselves with the public IMO.

But that's me, Its America and others can calculate profit any way they want.

 

[hardworkingstiff]

The bottom line is that you do what you think is right. Mark it up 125% or make a 20% profit in the sale (divide your cost by .8) = the same amount of profit.

You have to know what you need to stay in business. While profit is what we are after, a lot of people are just trying to stay in the game waiting for the recession to be over.

There is no "one size fits all" % of markup for overhead and profit.

 

[Mule]

The bottom line is that you do what you think is right. Mark it up 125% or make a 20% profit in the sale (divide your cost by .8) = the same amount of profit.

You have to know what you need to stay in business. While profit is what we are after, a lot of people are just trying to stay in the game waiting for the recession to be over.

There is no "one size fits all" % of markup for overhead and profit.

Well said....

 

[emahler]

Oh I understand, and Im not trying to be smart....Its just think we over complicate the issue. And furthermore my customer would be offended if I charged by the other way.

To me I invest $100 in materials at the supply house, I sell it to the customer, and bang I get $120, I get my $100 back and my ROI is 20%...its real simple. The retail community has just about burned themselves with the public IMO.

But that's me, Its America and others can calculate profit any way they want.

every time i think you are learning....BAM...the mule rears it's head...

while the above is very simple...here are 2 major points...

1) realize that you are only earning 16.5% profit, not 20%...and plan accordingly
2) how would your customers get offended? do you line item your O&P on your invoices/bids?

 

[emahler]

The bottom line is that you do what you think is right. Mark it up 125% or make a 20% profit in the sale (divide your cost by .8) = the same amount of profit.

You have to know what you need to stay in business. While profit is what we are after, a lot of people are just trying to stay in the game waiting for the recession to be over.

There is no "one size fits all" % of markup for overhead and profit.

there is no 'one size fits all'...but there is one correct way and one incorrect way...know which one you are doing and compensate accordingly...

heck, work at a loss...but know the correct way to calculate your loss...

 

[Mule]

every time i think you are learning....BAM...the mule rears it's head...

while the above is very simple...here are 2 major points...

1) realize that you are only earning 16.5% profit, not 20%...and plan accordingly

Take a calculator, multiply $100 x 1.2 or 120%....I understand what your saying its just a play on numbers IMO


[/QUOTE]2) how would your customers get offended? do you line item your O&P on your invoices/bids? [/QUOTE]

YES,
"that's why Im out of work and on the soup line, customer dont trust me"

 

[emahler]

Take a calculator, multiply $100 x 1.2 or 120%....I understand what your saying its just a play on numbers IMO

2) how would your customers get offended? do you line item your O&P on your invoices/bids? [/QUOTE]

YES,
"that's why Im out of work and on the soup line, customer dont trust me"[/QUOTE]

it's not a play on numbers...funny thing about math, it's definitive...contrary to what the schools have been teaching us for the last 50 years, there is right and wrong...correct and incorrect...

what is 20% of $120? it's $24....

my main point? know the correct way...if you choose to do it incorrectly, do it with the knowledge of it being wrong...not with the misguided notion that it's remotely correct...