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.

If anyone has feedback I would love it.

Thanks,
Mike

Don't forget to add the sales tax if applicable in your state. And also you might want to consider the word contingency. Once in a while stuff happens.

"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.

I factor in 30-35% min.

Dnk..

" "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.

Not only the gross cost, but the gross cost to replace it in stock. Such as copper wire or pvc, which shot up in price recently....

Alan

LK, maybe I am confused by your post.

How can losses 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...

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

... Most times I figure in labor and material then multiply that by 1.31,..which is the 25% mark-up as well as the 6% sales tax...
Russ

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!

Reno, my materials last year were @150K, the 35% mark-up is @ 60K.

That's very important to me.

This is a average I shoot for, sometimes I can double or triple the cost of something. Sometimes I can only "squeeze" 10%.

I sell material, I sell advise, I don't care.
It makes money.

Lear, I know the 35% may be low, but when your still small, you can't price yourself out of the market., but I'm still learning...

Dnk....

DNK ~ I hear ya brother. Though we aim for the 50% sometimes we just can't get there. For large expensive stuff (like a $5K Xmfr) our M/U is only 20%. For wire nuts, cable, recept's, ballast,s and the like, we try hard to keep the M/U at 50%. On a side note, do you [or anybody] have a fuel surcharge??
Bill

Lear, no on the fuel surcharge. Keep the traveling down now and having more things delivered...

Dnk..

Dnkldorf,
"my materials last year were @150K, the 35% mark-up is @ 60K."

from this $60 are you deducting state taxes, storage cost, cost of material stocking and movement, inventory time, billing time, time spent purchasing items, special order items, and delivery costs.

That $60K sure can shrink fast, as you said, "This has to do with management and organization." If all thes costs are met, and your still making the desired profit, then you are fine, if not then there may be a need to adjust the percent of mark-up.

Why i said you can't just put a 50% off the wall, was if someone had jobs with more service work and required more special order items or pick-up orders, their mark-up could be higher then 50% resulting in a loss, or if someone had a lot of planned jobs, their mark-up may be lower then 50% not all business operate on a fixed rate.



[This message has been edited by LK (edited 01-11-2006).]

NO LK, I don't figure things that way.

I do fine not worrying about breaking things down to the minute detail.

In the end, no matter how small you break down the costs, the bottom line is the profit line. As long as I know what this job cost me, and how much I made is all I need to know. I already know what my fixed expenses are every year. How much you break it down is up to you. If you want to break it down to pennies for every task, that's fine. I lump them all together as expenses.

Dnk...