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.

LK,

how many guys actually take all of these items into account?

mahlere,

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).]

Les, that's a tough one to answer for the following reason.

Sometimes I can get 300% markup, but mostly on small items. I can't take a transformer that costs 10K and mark it up 300%, and stay competitive. But I can take pipe and wire and get that easily.

The norm ( for me)is shooting for 30-35% markup for the year end. So if I spend 150K a year in parts, I should see income on them at 45K.

As for breaking things down to the minute level, that is not for me....

Dnk...

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.

Dave

Dnkldorf,

"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).]

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?

Dnk...

Dnk,

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.

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?

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.

Dave

I'm in the same boat as aryton. My main customers have a lot of work done, are fairly cluey on how much things cost and will jump on me if I put on too much markup. I prefer working for someone who knows what he wants, has some idea how he wants it done and pays me to make it happen rather than having to spend ages explaining all the possible options to someone who hasn't the faintest idea.

Just in case you feel you aren't doing enough "number crunching:"

I think you need TWO 'prices' to keep in mind.
The first- the price the customer should see- is a figure reasonably close to the price he's likely to get himself. No $10 aspirins, please.
The other is the burden stocking the item places on you. Now, this is a litle harder to figure- and it goes up dramatically if the item is 'back at the shop' and not on the truck.

I can't speak for every contractor, or every job, but....many times the cost of my trip to the parts house is paid by the customer. Many times the part has already been "bought;" that is, paid for by another customer, and left over/ salvaged from another job.
Other aspects of stocking parts...such as losses /damage over time, are items you control, and need to keep track of.
Sometimes you're better off throwing things away!

"never in all my working years , did i have a commercial, or industrial account question material prices." (quote)

Good for you, but that doesnt mean it doesnt happen. Most companies are always looking to save money. For example: a large industrial complex I work for, has a maintenance guy who does general things. Changing lamps he can reach no higher than a six ft ladder are one of them. They buy all there lamps, because they get better discount than me, because they buy them in bulk quantity. Every once in a while maintenance will change a ballast, or egress.
They than obviously know what these items cost. So for us to mark up these same items drastically, doesnt always go, with out question.

"They than obviously know what these items cost."
____________________________________________

They may know what it costs, for them to buy the item, but when you supply the item , the burden costs need to be added, to cover the cost of your time ordering, stocking, pick up, or delivery charges, and a small profit, these costs add up.
If they are in business, they know the costs.

That is why I said "markup drastically"
People are stating on this post, some pretty high markups. Cannot always be done

When you try charge the customer for a trip to the shop, or supply house, they can get pretty upset, and usually do, so in order to avoid this, we mark up the material eniough to recover these costs.
Our invoicing of one contract price, helps avoid conflict on charges, T&M billing always leaves the customer with stress, as any unknown expense would.

what LK is really getting at is that the markup should be on all your costs for acquiring the material.

You are not marking anything up 50%, 70% 300%. You are only marking up your true costs 10% or 20%.

The material may cost you $100. But the burden to acquire that material my be another $100 (time in the office finding the right part, phone calls to get pricing, creating a purchase order, receiving the material, handling the material, etc.)

So the true cost of that material to you is $200. So you mark up the total cost. You can either markup your cost 10% and bill the material at $220. Or you can make 10% profit on that material and bill it out at $250.

Now if you bill out the $100 burden as labor, just markup the $100 material cost.

So, it may look like a 100%+ markup on material, but in reality it's only 10% of your total cost.

Yup, that is the way to recover your costs.

Well, that is again what's tough about these type questions..You don't know who's perspective is from what side of the industry..

Resi service guys have one way of doing it, by breaking down everything into sub-catagories..

We just lump time as time, materials as materials and were done with it.

ayrton, I don't anyone who gets that much mark-up on that big of an item...

Dnk....