Don’t Put Your Business At Risk By Guessing At What Mark-up To Use

Business Markup

 

Shawn McCadden

Mark-ups on any product or service you sell need to be based on projected overhead costs and net profit requirements for producing a specified volume of work. Be careful using someone else’s mark-up suggestions, particularly if they have not done the math to figure it out.

Fact is about 9 out of 10 contractors eventually go out of business because they don’t know the true costs of doing business. They are either guessing at what mark-up to use or guessing at which contractor’s mark-up they should copy.If you’re going to risk copying the mark-up of another contractor, make sure you get your mark-up info from that 1 out of 10.

Think about it, it’s like asking how much money you need for gas to drive across county. Depends on where you start, cost of the gas, how fast you drive, how many miles/gallon, summer or winter, who’s driving…

Also, many magazine articles advise contractors to apply a “professional mark-up” to their bids. But what, exactly, is a professional mark-up? Does a 50% mark-up make you a professional, or should you apply 67% to qualify? The simple answer is, if you don’t know what mark-up your company needs to use, you’re not a professional, and therefore you’re not using a professional mark-up. But if you know the formulas for determining margin and mark-up, you have a working financial tool, rather than a magic number suggested by some remodelling guru or pulled out of a hat by another remodeler.

Different mark-ups, same price

To determine your company’s mark-up, divide your anticipated annual indirect costs (costs of overhead and profit) by your anticipated annual direct costs (costs to produce projects):

Business Markup Table

Therefore, if one company considered its field employees’ health insurance a direct cost, and another company defined it as an indirect cost, those two companies would apply different mark-ups. In theory, if both companies had all of their other costs covered somewhere within their annual budget or estimate, they’d sell their projects at the same price, even though their mark-ups differed.

Remember this the next time you’re impressed or puzzled by what your fellow contractors claim to be using as a mark-up. 


Read more in EIN from Shawn McCadden:

3 Ways To Get Fewer Leads But Close More Remodeling Sales
Don’t Underestimate Your Estimating System’s Potential
Tips on Ball Park Pricing and Charging for Estimates
Is A Contractor Really a Salesperson If He or She Hits Send?
3 Ways To Get Fewer Leads But Close More Remodeling Sales
3 Simple Steps to Covering an Employee’s Non-Productive Time
Setting the Example: Getting Employees to Think Like Owners
Comparing Contractor Mark-ups Can Be Pointless and Very Risky
Don’t Put Your Business At Risk By Guessing At What Mark-up
Simple Profit Sharing Plan for Contractors

Check out Shawn’s website http://www.shawnmccadden.com/ and blog www.shawnmccadden.com/Subscribe-to-The-Design-Builders-Blog.

* “Understanding what impacts your construction company’s reputation,”

http://www.pn-projectmanagement.com/construction-management-tips/understanding-what-impacts-your-construction-companys-reputation

 

Related Articles


Latest Articles


Changing Scene

  • Intralec Named New Sales Agency Partner for IDEAL Electrical in Central & Southwestern Ontario

    Intralec Named New Sales Agency Partner for IDEAL Electrical in Central & Southwestern Ontario

    July 7, 2025 Intralec Electrical Products is proud to announce our new partnership with IDEAL Electrical as their sales agency for the Central & Southwestern Ontario regions. As a Canadian manufacturer with over 60 years of experience producing quality products—many of which, like the Can-Twist wire connector and Yellow 77 lubricant, are made in Ajax,… Read More…

  • City of Winnipeg Continues to Improve Online Permits System

    City of Winnipeg Continues to Improve Online Permits System

    July 4, 2025 The City of Winnipeg has launched an improved Permits Online web portal. This upgrade aims to make the permit process more convenient for customers. Permits Online is a one-stop shop to manage the permit process. Now, the web portal is easier to use because customers can navigate it using their mobile device. The portal… Read More…

  • Schneider Electric Launches Chapter 3 of Sustainability School

    Schneider Electric Launches Chapter 3 of Sustainability School

    July 4, 2025 Schneider Electric, the leader in the digital transformation of energy management and automation, has launched Chapter 3 of its online Sustainability School, a free training program designed to empower its channel ecosystem partners to become leaders in sustainability. This chapter will focus on teaching businesses how to decarbonize and unlock the competitive… Read More…

  • United Chargers Launches Grizzl-E Club Charger-as-a-Service Subscription Model

    United Chargers Launches Grizzl-E Club Charger-as-a-Service Subscription Model

    July 4, 2025 United Chargers Inc., known for the Grizzl-E line of EV chargers, announces Grizzl-E Club, a first-of-its-kind charger as a service that provides a free EV Charger and pays drivers back for charging. Grizzl-E Club is designed to make EV ownership more rewarding, accessible, and future-ready. Beginning July 1st, Canadians can join the Grizzl-E… Read More…