ECN Forum
Posted By: electure What's a Fair Markup? - 11/14/04 01:49 PM
What do you consider to be a fair, yet profitable markup on material?

Service work ?

Construction Work ?
Posted By: golf junkie Re: What's a Fair Markup? - 11/14/04 04:36 PM
30%

cost/0.7=selling price
Posted By: andyp95 Re: What's a Fair Markup? - 11/14/04 06:49 PM
In my area 30% is the average.It varies around the country and depends on the type of item.
Posted By: Dave55 Re: What's a Fair Markup? - 11/14/04 07:46 PM
I part from the norm here and pass materials on at cost. Almost all of my materials are low-end things like wire & steel. Legally I'd be required to pay sales tax on the markup. I often am being paid for my time getting materials.

If I were buying expensive lights, fans, or equiptment I'd probably mark up, but I usually have the customer get those things so the warranty is with the manufacturer.

Dave
Posted By: maintenanceguy Re: What's a Fair Markup? - 11/14/04 09:28 PM
It costs money to order, pickup, warehouse, deliver, or stock materials. I don't think 30% covers the cost.

I'd think that on really big items,(over $1K) a 10% or 20% markup covers the costs but on coverplates, switches, breakers, etc. 100% is certainly fair, 200% wouldn't phase me.

I'm the maintenance supervisor for a city school district. I have to account for all of my costs. I have to figure out what it costs to have one of my guys drive to the electrical supplier to pick up a ballast we don't stock. The real costs are outrageous. There are lots of little jobs where the hidden costs of the job are larger than the man hours and materials costs. If you generally charge 30% markup, you're loosing money on materials.

I hire a lot of contractors. I know their costs of materials because I probably buy more electrical materials than most of the contractor's do. On big projects, I expect to get materials at close to cost. But on little jobs, 200% markup on a little part seems more than fair for a guy who just dropped everything to drive an hour to solve my problem so I can open school at 7:00am.

On rare occasions, I've been given invoices with 400% markups for materials on little jobs. I'll remind the contractor that I shop at the same supplier he shops at but on small jobs, it's still not big money so I don't really balk too much.

[This message has been edited by maintenanceguy (edited 11-14-2004).]
Posted By: Tom Re: What's a Fair Markup? - 11/14/04 09:57 PM
To really answer that question, I think you have to look at your overhead costs & don't confuse overhead with direct job costs.. Also, you need to decide if you will also be marking up your labor costs.

One overhead item frequently overlooked by small shops is all the time spent on "free" estimates. The big shops have full time estimators & that position is overhead, so if you're a one man shop like myself, you should figure your estimating time as overhead.

Once you know what your overhead is and how much you generally spend on material purchases, then you should have a realistic idea of what you need to charge.

In my area, my 25% markup is just a little on the low side of average. I usually lower the markup on really large $$ items.

Keep in mind that the markup is a percentage of the selling price and is not the multiplier. A 25% markup calls for a multiplier of 1.33

Tom
Posted By: drillman Re: What's a Fair Markup? - 11/15/04 12:42 AM
I am not sure what markup is in my area. However if we want to talk estimate times...

I work as the electrician for a county maint dept. We have a contractor that has a "cost plus" contract with the county that we do business with from time to time.

He includes the time he spent on the job going over it with us on his price. I think it says "site visit 2hrs".

The county pays him.
Posted By: dougwells Re: What's a Fair Markup? - 11/15/04 01:33 AM
When I used to work for a Pool service Company most of the parts were marked up with a 40% Margin
The divisors are as follows

divide by .9=10 percent margin
divide by .8=20 percent margin
divide by .7=30 percent margin
divide by .6=40 percent margin

this was helpful as if you took 10 percent off your selling price you would not lose
but if you took 40 percent off you were selling at less than your cost

IE, marked up item that cost 100.00 + 40 percent margin= $166.00

100.00 + 40 percent =140.00
140.00-40 percent =84.00

but 166.00-40 percent=96.60
still less but more workable

I usually try and charge a 35 percent margin and get complained about that on material that are about 1000.00 material bill

oh well hopefully i can just charge properly one day and not have to explain to the customer why i mark up
Posted By: dmattox Re: What's a Fair Markup? - 11/15/04 02:30 AM
Also don't forget to take into account warrantee. If we supplied it, we warrentee it for one year, so if a light bulb burns out we will drive to replace it.

Doing that makes 200% markup on a $2 bulb look small [Linked Image]
Posted By: writerguy Re: What's a Fair Markup? - 11/15/04 10:10 PM
how many of you advocate flat-rate pricing?

edit: that question was for those of you who do service work. sorry.

[This message has been edited by writerguy (edited 11-15-2004).]
Posted By: Electricmanscott Re: What's a Fair Markup? - 11/15/04 10:26 PM
For me 30% is normal for most material I deal with and seems to be fair. I never ever "give away" material at cost. I do not supply decorative type fixtures or ceiling fans etc. I do try to upsell things like dimmers, decorator devices, and better quality bath fans. For a one man operation every penny counts. 30% on a $50.00 fan is $15.00. Not bad. On a $135.00 fan it's $40.50. Thats more like it! The customer gets a better product, I make more money, everybody wins.
Posted By: Active 1 Re: What's a Fair Markup? - 11/15/04 10:39 PM
A great book on this point is "Mark Up and Proffit" by Stone. I can't say I understand it all what he writes yet. Basicly his point is you should not pick a number out of the sky like 30%. He has some formulas that you worked backwards. If you sell this much, your OH is this, materials cost, owners pay, owners proffit, company proffit than your mark up HAS to be this or you will not make your goals.

What is interesting is he pays the OH and proffit on the material sales not the labor.

It really seems like most EC don't look at materials as a money maker. A lot seem to concentrate on the labor only. I don't know if that is because in the years past materials were pretty cheap. If you look at what you spent on material in the last year think of how much more you would have if you marked it up xx more. I also read EC saying we charge xx mark up to cover the trouble of getting it. How many things in this world can you buy for a little bit over cost? Just to pay them a little for the trouble of going to the warehouse to get your what ever.

I seen other programs where it was just the other way. All the OH and proffit was based on labor only with nothing figgured in for labor. The minimum labor rates tended to be higher.

It brings up a question. Would it be better to charge a customer a high MU say 3.0 with $40/hr labor. Or high labor rate say $100 per hour with almost no MU.

I am guesing the best way would be to figure half your OH and proffit on labor and the other on half on materials MU. It would make the labor rate maybe $65-70 /hr. Then the MU would be 1.5?

Another question would be at what point do you need to care what the other guy is charging MU, labor rate, etc.? I like to know too but I think you have to be carefull not to follow the other guys off a cliff.

Not to offend anyone just some ideas for disscusion.

Tom
Posted By: LK Re: What's a Fair Markup? - 11/16/04 12:46 AM
Tom,

You hit the nail on the head, "Mark-Up and Profit" By Stone, is not only the safe way to run a business but the only way, however many feel, that if they use these methods of mark-up, they will not get any work, because they are to high on the bid, however, these methods of pricing, assure a profit on every job, The bargin hunter, or price shopper may not like your prices, but the serious buyer with a need to have work done will.
And yes, the auto repair industry uses the split method of mark-up 50% or more Labor mark-up and 50% or more Material mark-up, and they turn a nice profit.
Posted By: Dave55 Re: What's a Fair Markup? - 11/17/04 08:15 PM
I wanted to add more about this subject of markup.

You can never add enough to cover the warranty work replacing an outlet, switch, light or ceiling fan. Also, thanks to the proliferation of hardware stores, nothing will stick out on an invoice (and tick off your customers) more than markup, IMO. I'd rather charge $5/hour more and pass materials on at cost. I'll make more on that $5/hour, which WILL cover the cost of warranty work.

If you're on time, clean, reliable, perfectionist, etc. your customers will go that extra $5...and feel good about the material cost.

Dave
Posted By: Electricmanscott Re: What's a Fair Markup? - 11/17/04 11:09 PM
Dave, I don't actually put the price I pay for material on an invoice, just as the supplier does not list the price that they pay for that material.(They don't give it to you at cost) The markup is there in part to cover the time you spend getting that material. If a customer calls five contractors and asks how much per hour to wire six receptacles they will remember who was $5.00 an hour more expensive than the other guys. Markup is an integral part of your overall dollar intake. Why give it up?
Posted By: Anonymous Re: What's a Fair Markup? - 11/17/04 11:55 PM
Dave made an interesting comment about being required to pay sales tax on any mark up he would put on material. Is that common around the country? I have never heard of that one. It is not required in my state. However, it is required by one municipality in my area.
Posted By: Active 1 Re: What's a Fair Markup? - 11/18/04 01:13 AM
Charging sales tax is a good question for the accountant to explain. Short answer, no. Long answer:

IL IRS
"Are construction contractors required to collect sales tax? (top)
When construction contractors incorporate tangible personal property into real estate under a construction contract, they are not authorized to collect tax from their customers. In this situation, the contractor is considered to be the end user of the tangible personal property and incurs a Use Tax liability, on the cost price of the property incorporated into real estate, which he either pays to his suppliers or self-assesses and remits to the Department. If a construction contractor, however, sells tangible personal property to customers over-the-counter, he is making retail sales, and is required to collect sales tax just like any other retailer. Please refer to the Illinois Administrative Code; Sections 130.1940 & 130.2075."

I guess is the IRS just does not trust us to collect and pay it. Less trouble for me.

Tom
Posted By: Electric Eagle Re: What's a Fair Markup? - 11/18/04 02:21 AM
I used to share Dave's opinion, but I've learned to overcome it. I was affraid to charge more for an item than my customer could buy it at Home Depot. Sometimes even losing money on an item because I had to pay more than they could find it otherwise. Now I understand that to stay in business and cover all my expenses, I have to mark up materials. Much of our work is flat rate, so we don't even break out materials, but for our internal figures, the materials are marked up.

For items like dimmers and switches look at it this way. Lets say you're on a job and you need a device box. The closest place is a hardware store and they charge $1.80 for it, but you know you can get it at your supply house(15 miles away) for $.70. Do you complain or gladly pay and be thankfull you don't have to drive 15 miles and waste an hour. If you have any common sense, your overjoyed that the hardware store had that item on the shelf for 2 years waiting for you to buy it. Now consider that 4 way ivory decora switch you have on the truck, the one you bought last year, just in case. Now should you charge the $6 or $7 you have invested in it or should you charge $9 or on an item like this, maybe even $12. In this case the 4 way switch is to the homeowner like the device box was to you. They need it and you have it. Now if you don't have the switch and you charge them $75 an hour to drive and get it, then maybe you shouldn't mark it up.

[This message has been edited by Electric Eagle (edited 11-17-2004).]
Posted By: Anonymous Re: What's a Fair Markup? - 11/18/04 03:50 PM
Active1, Yes with regard to the sales tax quote from your tax code. Works the same way in my state. As long as I am not selling across the counter I pay the tax to the supplier and I am done. There is no more tax paid. With one exception. If I pull a permit in Colorado Springs I get a letter from Colorado Springs when the permit is closed out. I have to pay tax on any material I brought to the job. Even if I bought the material in Denver, paid state and local tax on the material and took it to the Springs myself. What a HASSLE! Even in that case I do not pay tax on my mark up. (Should have made that clear earlier.) I find it odd that anyone would have to pay tax on their mark up.
Hey, I agree on the material mark up. I mark up everything. I provide engineering on most of my jobs and I mark up my engineering fees. I feel I need to see a return on every dollar that is spent in my business or as Les pointed out I am just working for wages.
I know I can buy oil at a discount auto supply place. Change the oil in my truck myself and save money. I don't, I take it to Jiffy Lube and let them do it. Sure I pay twice as much for the oil but I expect that. It is just part of the package.

EDIT: I don't want to come across that I am saying it is "wrong" not to mark up material. I just feel that electrical contractors as a whole could make more money if they would all get together and agree on rates and mark up. ( I know, a nutso thought.) I do know that it is difficult if not impossible to compete in the residential service market with guy's who post adds in the local paper that go something like - "Moon lighting Master, Licensed, Insured, Cheapest Rates in town" (Direct quote from my local paper.)

[This message has been edited by kentvw (edited 11-18-2004).]
Posted By: Tom Re: What's a Fair Markup? - 11/18/04 04:23 PM
The sales tax thing works a little different here in the Mountain State. If I'm doing new construction or installing new circuits or equipment (not upgrading old equipment) I pay the sales tax at the wholesale level. I recover this as an additional 6% in my markup.

If I'm doing repairs or replacing old equipment, I don't pay sales tax at the wholesale level, but I'm required to charge my customer sales tax on everything, including labor.

It is a pain in the backside but this came about because of abuse of the previous system.

Tom
Posted By: Active 1 Re: What's a Fair Markup? - 11/19/04 12:41 AM
I learned my lesson on dimmers and fan controls. In the past I charged a bit more than my suppliers cost me. Sell and start the job. Were short one so I jump in the truck to go to the big stores. The box store charges more than I charged the customer. So I loose money and time. Then they call the next day cause the knob broke off. So I waist 2 hours and gas picking up another one, driving, replacing, and returning the bad one. Then there is the chance of someone fring one out. I think we all have? I had a 1000w 3 way this year go up in smoke. Had another one a guy broke tring to cram it in the box. I also ate a low voltage dimmer cause they gave us a magnetic instead of a electronic one. Was installed no returns. That is a few hunderd in losses on these things. I need to charge a reasonable amount to pay for warrenty, over head, bad debts, and MAKE A PPROFFIT. Charging only a few dollers MU on these items I would loose money.

Tom
Posted By: maintenanceguy Re: What's a Fair Markup? - 11/20/04 10:33 AM
In NJ the contractor pays tax on material at the supplier but the home owner pays sales tax on the material markup. So they say you should separate material cost and material markup on the invoice and only tax the markup. But then of course the customer sees your costs.

The law also says that if materials markup isn't broken down on the invoice the customer pays tax on all. So when I was contracting, the customer paid tax on all. I hated double collecting sales tax but I wasn't going to share my material costs.
Posted By: iwire Re: What's a Fair Markup? - 11/21/04 12:15 PM
I have never run my own business but I found this thread interesting.

From an 'outsiders' point of view, why not charge a mark up?

As a consumer I expect to pay a mark up, isn't that just business as usual?

I thought that was why we buy stock at wholesale so that it can be marked up for retail.

From talking to the folks in the office we have no 'standard' mark up. Small items get marked up substantially and larger items get a lesser markup. I list everything on the T&M slip, tie wraps, wire nuts, rolls of tape, screws, etc. and the office bills it all out. They certainly do not tell the customer what we paid for the stock.

When my mechanic installs a part I pay more for it than if I go and buy it at the auto parts place.


It seems you are giving up a substantial revenue source if let the stock go at cost.
Posted By: GA76JW Re: What's a Fair Markup? - 11/21/04 01:59 PM
Just to add a little more food for thought:

The stores where all of us shop mark up their items we are buying. Wal-Mart doesn't give us items for cost, if they did they wouldn't make money. Third party insurance agents mark up also. Everyone marks up their items. There should be no shame in it.
Posted By: DougW Re: What's a Fair Markup? - 11/23/04 12:17 AM
How do you guys deal with the "little dangerous knowledge" customers who want you to buy mats from the Box stores? (I seem to get them all in North Chicago).

I usually give 'em the option of paying my (marked up) price, or being charged labor rate to order & pick-up from the store.
Posted By: hbiss Re: What's a Fair Markup? - 11/24/04 12:01 AM
I fully agree that you need to mark up your material.

A fellow EC just yesterday related this story. He had done work for a customer on two or three occasions within a six month period. The first two jobs went without incident, he gave the customer a price, was authorized to do the work and was paid.

The third time on completion the customer requests an itemized invoice rather than one that shows only material and labor as a condition of payment. My friend complies. Customer says that he was overcharged for such things as recessed lights. Now he wants itemized invoices for the previous two jobs to see "how he had been screwed". My friend goes to talk with the customer and the customer yells at him "YOU HAVE NO RIGHT TO CHARGE ME MORE FOR MATERIAL THAN WHAT YOU PAID FOR IT!"

If that were me I would be in jail right now. [Linked Image]

Probably the subject of another thread but I think we need to discuss how to avoid situations like this.

-Hal
Posted By: A-Line Re: What's a Fair Markup? - 11/24/04 12:28 AM
I give the customer the price for the total job. I don't break it down by labor & materials. I show them the price and have them sign that they accept the price before I start any work. When I go out to dinner I see the price on the menu if I order it I have agreed to the price. I don't care how much they marked up the steak and it isn't any of my business. I don't ask to see a breakdown of how much the labor was to prepare the steak and how much the steak costs. If I don't like the price I don't have to buy it.
Read "I Want A Breakdown" by Frank Blau
To read go to www.google.com and search for I Want A Breakdown by Frank Blau

[This message has been edited by A-Line (edited 11-23-2004).]
Posted By: Electricmanscott Re: What's a Fair Markup? - 11/24/04 01:53 AM
There was an article in the paper about markup on wine. Average was about ten times cost. Drink up!
Posted By: Active 1 Re: What's a Fair Markup? - 11/24/04 02:21 AM
Went to movies the other day. For 2 $18 to get in. But you want a medium soda (self serve) and medium popcorn $17. I never seen someone say how much does a fountan drink really cost? Or how much do those high school kids behind the counter cost?

Tom
Posted By: hbiss Re: What's a Fair Markup? - 11/24/04 04:30 AM
Well, I read that article by Frank Blau and I can't say I agree with it. None of these arrogent SOB's are going to sit still for a lesson in business management especialy from you.

My experience has been that if you are going to have this problem it's going to come from a customer who is usually wealthy, maybe a business owner, executive or professional. They are used to pushing people around. The amount of money they try to beat you out of is just pocket change to them. It's an ego, being in control thing because they have no respect for you. It's no different than the bully in the school yard when you were the nerdy kid.

They know that you are going to throw in the towel because you don't have the resources and don't want to spend the time and money to defend your position. How many of us have a legal department? Most guys would rather eat $1000 than lein the property and take them to court and that's where the problem is. If you let them push you around the problem only get's worse for everybody.


-Hal
Posted By: A-Line Re: What's a Fair Markup? - 11/24/04 06:55 AM
I think it would be a good idea to give the customer 3 breakdowns and let them choose the one they like.
Example: Total Job Price $500
Breakdown 1: Labor $400 Materials $100
Breakdown 2: Labor $450 Materials $50
Breakdown 3: Labor $500 Materials Free!!! [Linked Image]
Posted By: A-Line Re: What's a Fair Markup? - 11/24/04 07:01 AM
I wonder how many people would pay for the movie if they were charged after they watched the movie instead of before.
Posted By: slumlordworker Re: What's a Fair Markup? - 11/24/04 03:23 PM
cutomers will complain about everything. they will look at your incoice and compare prices. example all we install is commerical grade devices and one of our customers asked why we charged them 4.75 for a light switch when he could of gotten one at the local home center for .48 cents aren't we a little pricy. when we explained to him that these are a different grade and brand he questioned us and hasn't called us back since we won't use the cheaper crap that won't last. This sucks because we thought we had alot of work lined up with him and now it appers we don't but oh well atleast we are standing b y our company policy of only using commerical grade devices in everything that we do
Posted By: A-Line Re: What's a Fair Markup? - 11/24/04 05:30 PM
I think you will always have a percentage of customers that either won't pay or wan't a reduced price. I track this as bad debt on my P&L statement and figure it in as overhead so it gets included in my price structure. I quess its just another business expense like insurance, phone, gas,etc. You have to pass the expense on to your customers. All you can do is try to reduce your bad debt costs as much as possible. Thats why I like to give them the price upfront and get a signature before I begin any work. The ones that don't pay get a note not to do business with them on my computer when I look up their name. If a customer insists on a breakdown I can show that I only charge them what the material cost me, but this will increase the labor rate so they will complain about that. Your higher labor rate might be easier to explain though. If another contractor charges half the labor rate that you charge, you can explain to the customer that he isn't saving anything if it takes him twice as long to do the job. You can justify your higher labor rate by providing service superior to the other guys. Your labor rate is higher because you only employ the best electricians and to do that you have to pay them more and keep them well trained and motivated to do the job correctly. The customer may be able to find the exact same part that you installed cheaper somewhere else, but he isn't going to find the exact same electrician cheaper anywhere because he works for you. Not all parts are created equal and not all electricians equal. You have to pay more for the best.

[This message has been edited by A-Line (edited 11-24-2004).]

[This message has been edited by A-Line (edited 11-24-2004).]
Posted By: Electricmanscott Re: What's a Fair Markup? - 11/24/04 07:39 PM
Slumlord worker, you are going to "company policy" yourself right out of busuiness.
Posted By: Active 1 Re: What's a Fair Markup? - 11/25/04 02:29 AM
I would agree with electricmanscott. To put comercial devices in most homes would be a waist of money. If you marked up the two switches say 2.0 it would be:

$0.50 switch x 2.0 = $1.00 Charge
$4.50 switch x 2.0 = $9.00 Charge

As you found it may be difficult to get the $$$ for the comercial grade. As I understand it you did not mark it up anything and still lost a customer. Only a few $$ mark-up lost to give away a great switch at your cost might seem like it does not matter. At the end of the year look at the differance:

No MU every $1,000 in material you spend will bring you $950 with a 5% material loss.

MU 2.0 every $1,000 in material you spend will make you $1,900 with a 5% material loss.

I'm not saying it's a $900 profit cause you still have OH. I think a 5% material loss is on the low side. A MU of 2 may not be right for you or everything you sell but for small doller service call things it's not out of line.

Having inventory of the $0.50 switches is much cheaper also.

Try looking at it from another point of view. If you called a carpenter to put new interior doors in your home. For the door handles instead of using the $10 ones he used $50 comercial ones. With or with out a MU would you call himm back? The carpenter is only tring to do the best work.

Also it comes back to the job is broken down labor and materials then that caused problems. Sometimes it makes people happy if you put down free switch or what ever small and just charge more.

Long time ago I worked at an auto dealer. They would allways have problems with labor and materials seperate. One time the US post office figgured out on every oil change they were charged for 5 quarts of oil and not just "oil change" when the trucks took less than 5. They wanted a refund for every oil change on all the trucks for years past. No credit and the account was lost. Or a customer that was charged $4 each spark plug instead of $xx for a tune up swore he would never buy a new car there again. Auto shops have some of the same problems.

If you think a few cheaper swiches are going to wear out in the next few years than just figure on warrenting them. It does build customer relations and possibly lead to other work while your there.

Tom




[This message has been edited by Active 1 (edited 11-24-2004).]
Posted By: detubbs Re: What's a Fair Markup? - 11/25/04 06:39 AM
in our area, most electricians use Hubbell commercial grade switches and recps. and our SP switches are only like 1.73 and the 15A recps are only like 1.43 before any mark-up. we only run commercial stuff here aswell, in our area with our customer base to date, they would rather pay a little more for a switch that will last them a good many years than pay next to nothing and have to replace them every few years! most of our customers tell us "to put the good stuff in" and we hafta reply "we already do sir/ma'am"!
Posted By: Electricmanscott Re: What's a Fair Markup? - 11/25/04 11:54 AM
I don't know what residential grade devices you use, but there is no reason for them to not last many many years. [Linked Image]
Posted By: Electric Eagle Re: What's a Fair Markup? - 11/25/04 02:55 PM
I agree, we use primarily residential grade devices and I've never had to replace one we installed and only a few installed by others, most of those were cracked.

Slumlordworker, I'm not trying to pick on you, but do you really think a slumlord cares about the quality of the device? I also can't see them wanting to pay you enough to even cover labor and overhead, much less a profit.
Posted By: A-Line Re: What's a Fair Markup? - 11/25/04 04:48 PM
My father ownes some apartments and the tenants are hard on things. After having to replace the cheaper receptacles alot he started having better grade commercial receptacles installed. In personal residences people are more careful when they own it and I think the cheaper grades work just fine. When they're renting they don't care as much. I think when wiring apartments using the commercial grade devices makes sense.
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