# Mark up or margin??



## Vinny (Jul 21, 2007)

Stone Mountain said:


> When I price a job, I use COGS (cost of goods sold) plus a 50% MARKUP, which gives a 33% MARGIN.
> Lately, as I get morei nto this franchise thing, I've begun to wonder: what exactly constitutes COGS.
> 
> Direct material and labour for sure.
> ...


This is a continuation of a real old thread and I hope you dont mind me chimeing in here.

COGS is usualy recognized as the direct job installers labor cost,+ the burden on that labor such as payroll taxes + health insurace,+ w/c + g/l. Then add to that the material, dump fees and basicly any direct job cost. Now if you own a machine, say an excavator, you may or may not see that as a direct job cost but if you rent it soley for that job then it is absolutly a job cost. Your clean up crew is definetly a job cost and should be seen as COGS.
Then overhead is pretty much anything else, including your salary, and hopefuly if you planned right there is a profit. 
We have a field super. He goes from job to job overseeing and making changes as needed. He is in our field overhead catagory. But for us a job forman is on the job working forman. The equipment operator is a forman so he is part of the physical installation team and is listed as a COGS.
Now if you get a particular material delivered to a site and that product is for that site only and there is a delivery fee for it that is just like the cost for the actual material its self and is a COGS.
BTW I dont know how you are doing it on a 33% margin. Just an obsevation.
From a planning and managment standpoint it is easier, in my opinion, to work from the margin perspective. If you have all your costs broken out into thier correct catagories you can see where your margin needs to be to make a profit and you can then sell at the correct multiplier.


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## Fence & Deck (Jan 23, 2006)

Vinny said:


> This is a continuation of a real old thread and I hope you dont mind me chimeing in here.
> 
> COGS is usualy recognized as the direct job installers labor cost,+ the burden on that labor such as payroll taxes + health insurace,+ w/c + g/l. Then add to that the material, dump fees and basicly any direct job cost. Now if you own a machine, say an excavator, you may or may not see that as a direct job cost but if you rent it soley for that job then it is absolutly a job cost. Your clean up crew is definetly a job cost and should be seen as COGS.
> Then overhead is pretty much anything else, including your salary, and hopefuly if you planned right there is a profit.
> ...


Yes, I see what you are saying. When we have special material needs, I include the extra cost of running around to get and deliver it.

What do you mean "I don't know how you are doing it on a 33% margin? Not high enough, or too high?
I can't really se how I can get much more in this market. My labour rates are near the top of the industry, and I try hard to have everything working correctly for the crews: delivery, cleanup. etc. However, for every job I sell, there are 3 I don't get, usually becasue I'm "too expensiv". I wish I could get a 40% margin, beleive me.
Steve


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## Vinny (Jul 21, 2007)

Steve, I hear you on that brother. But I gotta tell you, I also thought we were the highest around and at times, I'm sure we were, but within reason there will also be someone else higher and some else even lower than the lowest. When we were at a 30% margin we were told "your high". When we were at a 40% margin same thing, "your high" Now we price in the 45 to 55 % margin depending on complexity of the job and you know what, I still have work and I am still told, "your to high". 

Selling has little to do with price and alot to do with what you offer in value. Some times it may be as little as showing up when your suppose to. It could be constant clear comunication between you and the client. It could be and usualy is perception about your company in the market place that it operates in. 

Do you have any sales and marketing training? If not, do your self and your family a big favor and get some. Its never to late for it and all information is good information. 

What is the area of your operations like. Is it affluent or working class. I ask this because some guys think " I cant sell to these blue collar middle income people, they dont have money to spend". Let me tell you from experience the opposite is true. The fact is working people really value thier hard earned doe and will want to use who ever they trust will do the absolute best job and they can trust to do that job and not give them the shaft. You just have to give these prospects or any prospect a better reason to buy from you rather than your competition. Some times its not just 1 reason its a bunch of little ones that when added together push the scale in your direction.

BTW, what I said about margin, If you are a 1 man show I guess you can do on 33% but if you have any real overhead what so ever, as a rule of thumb , you need 50% to be successfull. You may need more or less depending on your total overhead and your gross renvenue, but 50% is where you want to be.

I am just now editing this because I wanted to share this with you. I recieved an e mail from a client we are doing a small private lane repave on. There have been some concerns with the drains on the road and some correspondance between us. Its a great example of the value I spoke of. If you e mail me with your e mail address i will forward it to you. My email is [email protected]


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## crb555 (Jun 14, 2007)

There is a difference in risk / overhead cost between material and labor.

To avoid pricing yourself out of a job, yet remaining profitable, put a different percentage on the two types of cost.

IE..

Mat ... cost of goods X 1.07 (tax rate) X 1.10 (overhead) +
labor,,,, avg labor rate X 1.33 (labor burden) X 1.35 (overhead) +
subcontractors.... bid price X 1.01 (basically to cover bond)+
Direct job costs such as trailer, truck expense, permits, rental equip, etc..

Then multiply the final tally by your desired percentage of profit.

We normally will have around a 30% markup, and net 12 - 14% profit. Your mileage may vary depending on how tightly you control your overhead costs.


Crb5


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## Vinny (Jul 21, 2007)

Certainly there is more than one way to skin the cat. But I have thought long and hard about that exact attitude toward divisional liability and I priced things for years the same as my competitors have been, the same as you have suggested, and for years never made a dime profit. 

As far as material vs labor liability goes, the bottom line is if it f&^^$%s up, you will be replacing everything, material and labor, at an out of pocket cost so in reality there is no difference in liability. 

As for meothode of pricing a job, your method works and you will probably get jobs and profit probably as much as your competitors. I am not out to knock the methode, but what I am suggesting will give a buisness owner a better way of managing thier buisness and a far better understanding of thier buisness. 

Part of the problem with your method is this is the way a GC would have you figure a job for him. It gives them, the GC, the ability to control thier costs while controling your destiny.

I'm not pricing jobs, and no one should be pricing jobs to get them and hope to make profit. You must price to make profit and sell at that level. You cant do that while making markup on one thing and not on somthing else all on the same job. 

I think there are places for that way of figureing but if you want to grow a buisness, not own a job, you need to look at thing from a margin basis and manage from the numbers.


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## crb555 (Jun 14, 2007)

Well, we've done pretty well with it. A 12-14% net is a good place to be in the mechanical / plumbing industry.


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## Vinny (Jul 21, 2007)

crb555 said:


> Well, we've done pretty well with it. A 12-14% net is a good place to be in the mechanical / plumbing industry.


Lke I said there is more than 1 way to skin a cat and if its working for you , more power to ya. Cant argue with that


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