The question of material mark-up comes up quite often, so i thought, a chat i had with a gent, that does estimates for a large construction company was intresting, i asked how they survive on a 10% mark-up on material, and he explained how they mark-up, they start with the price, they paid for the item, then add the burden expenses, to that item, these expenses are, the cost of purchasing, handling, and billing, and any taxes, then they add the 10% to the item, so in total some items may be 100%, or as high as 300%, he said items, such as pipe, and fixtures can carry a much higher mark-up, then cable and wire.
So it appears, it's those hidden costs, are what you need to consider when marking-up.
Not many i bet, my accountant would just shake his head, and say, i see your still running a non profit business. I can't find any business i deal with that dosen't have a hefty mark-up, all the garages in my area mark-up 100% or more on parts, any service company we had do work for us added on a hefty mark-up.
[This message has been edited by LK (edited 03-06-2006).]
Re: Material Mark-UP#157969 03/06/0607:28 PM03/06/0607:28 PM
I recently purchased Stone's "Markup & Profit". He mentions that remodeling markup is higher than new construction. I'd take that to be similar for residential service over new construction. He says that the markup multiplier needs to be 1.5 to 1.7+. He claims that this is after reviewing thousands of businesses.
It seems to be more realistic to consider how much time you take to order, stock and handle material and add it in as labor at your usual rate, which is along the lines of Les' post.
This would be an effective way to get paid for what would otherwise be unbilled hours.
Re: Material Mark-UP#157971 03/06/0608:21 PM03/06/0608:21 PM
"I can't take a transformer that costs 10K and mark it up 300%, and stay competitive."
We talked about that, and as it turns out, the burden on ordering, delivery, and staging cost, on items like switchgear, and transformers is quite high, that is why they add the burden on the material before they add on their 10%, so they recover the cost, they remain in the bid range because any other company bidding will have the same costs of ordering, delivery, and staging, so a piece of switchgear may be marked-up as much as 150%. The company that is buying the installation will not always go with the lowest bidder, they usually go with a company that has a good track record, of bringing a job in on time, and near budget. When you drop the margin off high ticket items, you leave yourself open for any claims, or equipment service, or replacement, one of the main reasons you need to maintain a healthy margin.
[This message has been edited by LK (edited 03-06-2006).]
Re: Material Mark-UP#157972 03/06/0608:58 PM03/06/0608:58 PM
Les, you'd have to explain the "burden" costs to me...
The ordering is added in the quote time, as a billable hour on that job. The delivery and staging costs should be min, and be acounted for during the constuction costs. You have to have a relationship with your suppliers. They house the materials for you until you need them. You have the materials delivered the day before you install them. (this is on the big stuff).
Now, when I worked for a guy on big jobs, the guy would have alot of things delivered, and pay guys to move them in and out of a construction trailer, day in and day out. I could see where this gets expensive, but that was because the guy was not good at logistics.
Does the guy you were referring to, have the same problem, maybe?
Re: Material Mark-UP#157973 03/06/0611:54 PM03/06/0611:54 PM
They have no problem, because they know the costs involved, the company he works for has been in the construction business, since the 30's, and they have a large staff in the estimating group, it's the way they plan jobs that has allowed them to profit all these years, it appears that equipment sales is part of their earnings.
I thought it was intresting, how the larger companies, track their costs to maintain profits, what i learned from this is there in no magic mark-up number to use, but by assigning the proper cost burden to material can help maintain profits.
Re: Material Mark-UP#157974 03/09/0608:57 AM03/09/0608:57 AM
After reading what is dicussed here, I agree with some and disagree with the rest. Alot of customers in the commercial and industrial setting have an idea, on some or many items used in our field. They have maintenance people who purchase things that they replace or fix, Ex ballasts, lamps, fixturs, sometimes wire or raceway ect. Marking up materials to over 50% seems to me can burn you in some situations. There are so many contractors out there to who charge low labor, because a new one buy's a truck and starts his own "business" every day. They do shotty work, but customer doesnt know, cause they cant see alot of it. Guys dont pull permits. Many reasons. To stay competetive I just cant see marking up everthing to these high #'s As far as burden, like Dnkldrf stated, there isnt much. Supppliers deliver anything you want. Cost of materials w/tax and mark up should be in your quote. P/u, and unpackaging should be in your labor cost.
Example. Doing a job where customer wants a large UPS system. Unit is in the $30k range. How could you justify a 150% mark up?
Re: Material Mark-UP#157975 03/09/0606:17 PM03/09/0606:17 PM
We all work hard and have many expenses to control. We invest our time and money in our business. With that in mind, are we going to run our business the way we want to, deciding what to charge and what level of service to provide? Or are we going to let our clients and competitors control our business?
I have good clients that I appreciate and will provide the highest level of service including warranty work at no charge. If they want to dictate the contractors charges, I encourage them to hire the competition.