What is an acceptable percentage for profit margin mark up anymore?

Bob O. 84,Pa.

I think anywhere from 25% to 100% based on the quantity of the material.

Lately I've been focusing more on bottom line profit than material markup. It's the total profit of the job that will help me reach my financial goals. I find material markup time-consuming & tedious.

Dave

sorry tiger, you lost me. can you explain?

I'd say at least 75% on everyday Mr. and Mrs. Jones type jobs. I say at least that because I know others mark-up way more than that and they have every right to do that. I think it's very reasonable to pay $35 for a specific light bulb and charge the customer $100.00. This IMO is what covers the cost of knowing where to get the bulb in the first place and the time it takes to go get it and buy it. This is something a lot of guys do not consider. How do I know this? I used to work for them.

On the flip side, if materials are costing $100,000.00, I dont think it's reasonable to sell it back at $200,000.00. Thats just my opinion.

A lot of shops in my area charge 100%, I don't. They drive nicer trucks than me... I let some of my customers get the materials themselves, that's their discount for being friends and repeat customers. I generally add tax and a 40% MARGIN, not markup.(mat'l. cost+sales tax divided by .6= profit as a percentage of sale price.) But they all drive better trucks than me...

I can't believe what i'm hearing. You can get away with a markup that large? I never under any circumstances go over 30%.And that's to industrial customers. How do you people sleep at night?

They may sleep well, it depends on the type of work they are doing, if they are doing residential, or commercial service calls, then 100% may what they need to support both truck stock, and replacement inventory costs, do you value your time, it takes to order, and move stock, or do inventory, how do you cover these costs, unless you have sufficent mark-up.

Mark-up can differ with how you cost a job, or how you inventory, material sales, should contribute to your overall profit, how much profit do you need to stay in business, may be a good guide.



[This message has been edited by LK (edited 10-01-2006).]

hmmm when i used to do,plumbing I always got 100 percent mark up IE my costs Xs 2 how come electricians are not allowed to get the same mark up .... BTW hvac guys get the same mark up again why
I think I know the answer but would like to hear others opinions why electricians cant get this mark up.

Probably quite well and in a nice house.

I am sure they are not putting a gun to the customers head, the customer can always say no and find someone else.

We had a large concert venue for a customer, they felt we charged to much and found someone else.

I found their view odd as when I had to be on site during a concert a order of fries and a coke cost me $9.00. What do you think the mark up on that was?

Bob
They can get what they want for the fries as they have a captured audience. I know food service in the CStore industry gets at least 100%. 7-11 has more money in a big gulp cup than they do in the Coke or whatevers in there.
I generally get 20 to 30 % in my parts but if you get 100% I see no problem with it.

OK I agree they have a captive market.

How about 'designer' anything?

A pair of sneakers for $250.00 etc.

I should remind everyone I am just an employee not a owner.

That said why aim for low prices, charge what the market will bare and steer toward those customers that can afford it.

Nothing wrong with making a good living as long as your honest and upfront about it.

JMO, Bob

In response to mahlere:

I have a limited understanding of the finer principles of accounting, so I have some "hillbilly" ways of doing things which may only make sense to me.

In markup I think about my time involved in getting material to the client's door. I actually prefer thinking of it as "burden" which LK talks about. With common items like duplex receptacles or switches which are continually stocked, my time involved is minor. However, think of the material markup required to recover your time when the item is less than $1.00.

Then I think of items that I rarely use. A good example in this area is a 240 volt dryer power cord. Most dryers are gas...nearly all of them. I usually don't have a dryer cord on the truck. It may take an hour for a special run to the supplier for a power cord. How much do I have to markup that item to recover the time? What if it is a $1 item that takes an hour run to a supplier?

Rather than thinking in terms of percentage markup to recover the cost, I add a labor line. It's easier for me because I'm using time to bring that item to the client's door. I want to recover that time.

Now that I've recovered all the time it takes to bring the materials to the client's door without thinking about the multiple variables in material markup, I add a profit line to the job. This profit is what helps me build my business and reach my financial goals.

Dave

In response to skipr:

Maybe my previous post will illustrate for you the challenges of residential service. As a commercial/industrial contractor, you may call a supplier for $10,000 in materials which they will ship to your jobsite. You may have a Purchase Order, material takeoff, and a phone call involved in this. You may also have material handling on the jobsite.

Your 30% may be much more profitable than someone in residential service trying to recover the time of a low-cost special-order item.

Dave

"Your 30% may be much more profitable than someone in residential service trying to recover the time of a low-cost special-order item"

Yes it is, usually more profitable, that 30% on a job with low burden, can usually cover the burden cost and allow for a small profit.

Mark-up should also include, a burden amount, on the material, to account for Guarantees, and warranties on material, and the recovery costs of any labor needed to provide these services, some states require you to warrant your work for 1 or 2 years.



[This message has been edited by LK (edited 10-01-2006).]

We mark up 50% on everything listed. I say listed because we do not list every wire nut and fender washer on every job. This also helps to cover time & mileage to the parts house and shrinkage.

Fair enough, I guess that would make sense for residental. My problem with residental (which I did at one time) was the customer wanting too much for too little (a steak for the price of a hamburger). And after they pay you, "oh while you are here can you do this for me real quick?

Speaking of residential customers, If the customer is going to try and get me to do the work for "charity" then I am not going to do them any favors. If they try that angle, then I will always bid a high amount for all costs. Sometimes they will bite, and other times not, keeps me safe from getting involved in any "charity" jobs.

OK, I'm assuming that these 100% mark-ups are based on products you are buying in bulk at wholesale prices... right?

If you're buying products at full retail prices (i.e., at CED for a specific job), then a 100% mark-up is absurd. Wouldn't you be a litle upset if you found materials that a plumber charged you $1000 for at Home Depot for $450? I sure would be...

I only add 15% to 25% if I buy materials for a specific job, and then add my time at the supplier (including travel time) to my labor price.

My return customer and referal numbers are very impressive. I attribute this to the fact that I WORK for my money, and don't use every possible excuse to extract every dime possible from my clients.

As for the analogy about the price of a coke and a hot dog from an entertainment or sporting venue, I would rather not keep company with people who do business like they do. Just because they rip people off at every opportunity DOES NOT make it ok in my book.

I'm just sayin...

"As for the analogy about the price of a coke and a hot dog from an entertainment or sporting venue,"

The word there is convience. Convience is worth something.

On the otherhand ...

I expect an electrical contractor to keep an inventory of common materials in his truck. The cost of maintaining that inventory should be close to 5% not 100%. Considering his discounts from retail, I would expect to be charged RETAIL for common materials.

On special purchase materials he is entitled to charge for HIS time to find and deliver the materials.

---

On long term jobs I would never hire any contractor who is going to charge above retail for parts.

On short term jobs there is some convience factor.

When possible 100%. I would not mark up a $1000 transformer to $2K That might be a 30% mark up. So, 30% to 100% sounds like the proper range.

"When possible 100%. I would not mark up a $1000 transformer to $2K That might be a 30% mark up. So, 30% to 100% sounds like the proper range."

Exactly, not all items are marked-up the same, it is based on your cost burden. for handling, stocking, and inventory of the material, and it may be difficult, for someone that is not in business, to understand, all the burden costs, associated with handling material.

The $4200 boiler, cost the plumber $2200, but remember, he has to cover any labor, or other costs, of replacement should there be a problem, he also has to pay the sales tax, and must recover that, in his mark-up, the sizing, and ordering time, and finally the profit, he is entilted to earn on that sale.


[This message has been edited by LK (edited 10-03-2006).]

welcome to 2006. There are no real discounts for contactors anymore. The only discounts are from manufacturers listed Retail Pricing. Do you think that I pay 50% less for a receptacle at the supply house than you would pay Retail at Home Depot?

You can earn easily 6-10% in a Mutual Fund. The smart contractor would put their money their and just purchase invetory as needed for each job. But for someone to assume that we should front the money, store the product, utilize it on their job (for their convenience) and only mark it up 5%?

George don't feel bad, I would never work for someone who presumed to know my expenses to provide them with quality work and great service.

Good luck.

Electrical wholesalers are going out of business because hardware stores sell for less (of a limited inventory). If you consider the hardware store as "retail", the wholesaler is "over retail". If an electrical contractor buys from a wholesaler and sells at hardware store retail, he's taking a loss.

Dave

At the end of the day, or year (when it comes tax time) the only thing that matters is - Did I make the money that I wanted too, and did I do the number of projects that I wanted too.

It doesn't matter how you spin your pricing, you have a business to run. It has overhead and expenses and there needs to be some profit built in for the owner.

I see many contractors try to price based on retail...

Bill's contracting is charging $XX.xx per hour

Big Box Retailer is charging $X,xx per such and such

It doesn't matter where you purchase materials, or how much your competitor is charging per hour.

What matters is that you present your customers with a reasonable price that includes your - I repeat - YOUR costs for labour and materials, plus an appropriate mark-up for Overhead and Profit.

I tell my customers when it matters that they can probably purchase the materials that are needed for their project cheaper at the big box, than I can get it for at wholesale. If they choose to buy it, and want me to install it, that is fine... but it doesn't affect my calculation for overhead and profit, as I build that into my labour prices. The minimal fee that I charge for picking up the materials and financing the costs, the customer can pay if they so choose.

Just my opinion.

"I tell my customers when it matters that they can probably purchase the materials that are needed for their project cheaper at the big box, than I can get it for at wholesale. If they choose to buy it, and want me to install it, that is fine... "

My view is different, i don't bring my spark plugs, to the service station, because i realize that parts sales are part of his profit center, and if he did use my parts i would expect him to charge me more for his services, and if that part failed, was it the part or his installation?, what an argument that can turn into.

If you are not making profit on the parts you should make it up in the price, you are not supposed to get hurt here but bear in mind you should only be marking up the profit, minus the money you didn't spend getting the parts in the first place.
There is a difference between markup and profit.
Of course using the customer's parts comes with it's own pitfalls. If they don't bring you the right stuff your labor is higher and you will still need to get the right thing on the clock so the saving for them may not really be there.

The reality is, they may actually be saving you a lot of hassle by spending the day at the BORG, assuming they get the right parts.

If I was a customer I might shop around for the big ticket items that you would have to special order anyway (like a big genset).
It might even be a personal preference for a brand your distributor doesn't handle.
I wouldn't want to fool with the standard stuff you carry, even if I could save a few cents per wirenut or a dime a foot on the wire. It would be too easy for my job to grind to a halt because I forgot something or measured wrong.

FWIW, this thread is a great example of why T&M pricing is getting more difficult to make money at. When your average residential customer can walk into HD/Lowes and either buy the material for less than you can (or at the least, know the retail price) then it makes it difficult to make money on a markup. I don't know anyone in our industry who can charge a high enough labor rate on T&M to make up for this loss and still cover all the other expenses.

We replaced a few ballasts for a commerical customer. The customer supplied the ballasts and lamps. About a month or 2 later we were called back for more lights out. The Facility Mgr asked if any of the new failures were the ones we had done on our last visit, I advised him one of them was. He actually asked if we would replace the ballast under warranty and send the failed ballast back to Advance!! I advised him, when the customer supplies the materials the customer is responsible. We offer no warranty of any kind.

Unless Advance is providing reimbursement for labor I don't think you had any responsibility, even if you did sell him the ballast. At that point this would just be a customer good will issue.
The labor for swapping it out should not be on your dime unless you want to show them what nice guys you are. (not always a bad thing)

50% on anything under $100 and 30% on anything over. I supply everything up to and including bathroom fans (customers get to pick lighting fixtures and fans) That's it! No exceptions. My time starts AT the customer's house. I won't use customer supplied materials under any conditions. I might seem a bit hard, but I do what works.

It would be impossible for me to mark up a $9K transformer to $18K.

I might get 15-20% on them, but then get $5 for a 1900 box.

So it depends, at the end of the year I look at 30-35% as a window, for all materials bought.

My customers may not be able to go to HD to buy things, but they all have the web. That keeps me and my competitors in check.

Do I care if they supply materials? Not at all. I'd rather supply them and make a little more, but I wouldn't risk losing the job, if I wanted it.

I do alot of T&M this way, and make a good living do it this way.