Does anyone estimate using the cost plus 25% model? Just curious if its a good or bad idea and whether or not you would still mark up your material costs before adding the 25%. Sounds silly I know but then there's the "cost" part that throws me off.
On the subject of mark-up, how do you determine what percentage to mark-up? Do you decrease or increase that mark-up depending on the original cost of the material?
Just some questions I have been pondering for awhile. I typically estimate the total cost of materials I'll need for a job and mark each item up a percentage. Then I estimate my man-hours, then my overhead cost (determined by the number of man-hours) and add any profit I feel is necessary.
"Cost" is not what you pay over the counter for an item. Consider; You have to pick up the item at the supply house. You store the item on your van for possibly 1,2,3.... months. You paid for that item NET30 from your supplier and cut them a check at the end of the 30 days. So, "cost" is not what shown on the invoice from Acme Suppliers rather what that item cost you to buy, store and pay for in advance. Don't get what you paid confused with what the actual cost of the item ends up being. We use keystne pricing mostly. Pay $10 charge $20.
" "cost" is not what shown on the invoice from Acme Suppliers rather what that item cost you to buy, store and pay for in advance. Don't get what you paid confused with what the actual cost of the item ends up being."
You can say that again, and again, this is a big mistake, some make in pricing jobs, some items like rigid conduit, can end up costing 3 times the supplier price, depending how many times you need to move it, before installation, Then the billing, and inventory costs sure add up fast, and don't forget, to add the profit desired from material handling, unless you are running a chartiable institution.
If you just use an off the wall figure, like 50% you may find over time, the losses will add up.
If you consider how many man hours it takes and charge your rate, then figure out material costs plus 35%. How do you lose?
30-35% markup on materials is the norm.
If you forget to stock your truck, you have to move pipe around three or four times, or you forget to add hours for stuff, then yes the losses will add up. However this has nothing to do with picking an off the wall figure. This has to do with management and organization.
In fact this type of T&M work is much simpler to use than any of those flat rate systems out there. As for losses, you can lose on either system.
DNK - Local union contractors in NE use the "contractor net +50%" method. That actually calculates out to about the same as local non-union contractors that use the keystone method of costX2. The "minimum" for service work; That is, items that are picked up at the time of need, cost plus 50%. What you M/U is of course up to you, and 35% isn't terrible, it's just a little low. (IMO) Bill
Tonight is Wednesday night....why don't we discuss this in the chat room? Come one, come all!
I have not heard of this as a "model," but it sounds workable to me. You do have 'carrying costs,' and any more than that, and the customer will start to choke. After all, look at the bad press the hospital business gets over the $50 aspirin!
Some folks jack up the parts prices, in an attempt to appear more 'competitive' in their labor rate. The simple fact is, you have various overhead costs that simply must be paid, and must be part of your price.
Personally, I do not rely upon a markup on my parts to make my business profitable. Customer perception aside, I am in the "electrical service" business, and not the "parts retail" business. I don't want to risk losing my focus on making things work!