Markup is an important calculation for specialty contractors, remodelers, and new-home builders. If it's calculated correctly, businesses give themselves enough money to cover their overhead expenses and make a reasonable net profit. If markup is too low, you may be out of business rather quickly. Consultant Michael Stone covers the topic of Markup and Profit in his latest post and underscores its importance to business owners.
Your markup should be calculated at least once a year. Throughout the year, it needs to be reviewed and revised at least quarterly, especially if your overhead expenses have changed or your sales are coming in significantly above or below what you projected. You need to calculate your own markup from your own company numbers. There is no industry standard for markup; there can't be, since there isn't any industry standard for overhead. Every business has different overhead and profit needs and is building a different volume of work, so each business has its own markup.
After outlining the basics of markup, Stone says there are inherent differences between specialty contractors, remodelers, and new-home builders. Specialty contractors, for example, typically have smaller average jobs than remodeling contractors and lower overhead expenses.
Stone says a common misconception when calculating markup is believing the net profit is part of the owner's salary. Stone clarifies by saying an owner's salary provides for the owner and their family while net profit provides for the business.
Stone concludes by recommending contractors stop feeling guilty for having high markup values.
If that's your worry, your focus is on the price. You shouldn't be selling price, you should be selling quality, value, and service. Quit fussing about price and go tell your clients how good you really are. Good clients will pay for a well-done job that's finished on schedule and kept clean.Read More