# Using a Variable Markup to calculate Construction Job Price

I spoke to a young lady last week who told me her husband is using a variable markup on his jobs. He marks up labor 3 or 3.5 times cost, and materials 1.5 times cost. He then adds 10% to any subcontractor quotes and doesn't markup rental equipment or tools, or his time.

Gang, this is a recipe for disaster. How do you keep track of it all? How do you know your markup is enough? Using a variable markup will bite you sooner or later. I get at least one call a week from someone using a variable markup who can’t figure out why they're losing money. They obviously aren't charging enough for their work, but which markup is too low?

Using an inflated markup on one portion of your job costs essentially dumps your entire overhead onto that item. This is most often done against labor. The theory is that labor is always the biggest cost on any job, and that makes it the best item to carry all the overhead.

Charging all your overhead to labor is not the safest way to recover your overhead. Not by a mile. If you believe it is, tell me - what happens to your overhead when somebody fails to show up for work? Overhead is a 24 hour a day, 7 day a week, 52 week a year monster. When somebody doesn’t work and you can’t bill for that time, it is gone.

Let's start at the beginning. First rule is to have a good estimating sheet (or make life simple and use a computerized estimating program). Estimate all costs on every job, no short cuts. Anything over \$300 gets a written quote from a sub, a supplier or a second check from someone that knows what they are doing.

Next, total all the costs for the job. Then apply one markup to that total job cost figure. It is the simplest and most effective way to price out your jobs, and it keeps you out of financial trouble. Isn't that what you want?

In my opinion, here is only one variable that can or should be used in marking up labor. I'll use an analogy as an example. Cutting compound cuts in rafters takes a lot of skill and good grasp of math. The same goes with building stairs and interior wood railings. Special talents are required.

My cardiologist charges about \$150/hr for an office visit. But he charged me \$3000 for each of the two stents in an artery during my 2nd heart attack. Why? A diamond cutter charges much more for cutting a large flawless diamond than for cutting a small flawed diamond. Why? I charge substantially more for blending the popcorn, skip troweled, or knockdown texture when I must replace a damages section of ceiling drywall. Why, again?

So mu question is why does our industry still charge the same labor rate for a framer building simple walls as for the hours cutting and installing those compound rater cuts. Why does a trim carpenter charge the same labor rate for installing casing or base as he does for installing a decorative set of stair railings?

Accepted "risk" and exceptional talents mandate, as in other industries, a premium rate - read "variable."

I contend that for hundreds of years those people who buy our finished "products" have been getting one hell of a deal from our archaic industry's estimating systems. And we have no one to blame but ourselves because our industry is still stuck in the Mesozoic era as far as our pricing systems, including their estimating software.

Have you ever wondered why, if you mark up your jobs 10% your P & L shows you made less than 10% ! Do the math!
\$10,000.00 x 10% = \$11,000.00. Should be \$1,000.00 or 10% profit. Right? Do the math again! !,000 / 11,000 = something less than 10%. .090909! Amazing isn't it. Next time devide your cost by the reciprocal of what you want to make and you will make your profit. Your selling price would then be \$11,111.00 or in this case \$1,111.00 profit instead of 1,000. Now do the math again and you will a true 10% profit.
Happy New Year
Dick1835

I used to mark up my jobs 20% after I got my prices from subs or after I accummulated the price myself by usually guesstimating the project. I was paying my employee more money than myself just to keep him busy. I was doomed. By talking with Michael and implementing his system (Mark Up and Profit Book) I let my employee go, started using subs for all work, and marked up my jobs to 40%, then 50%, then 60%, then 70% and finally settled at 80%. What a difference this makes on paying your bills on time. I was also able to keep my wife, kids, and home.

Thank you so much for publishing this for free. Great info. Thanks for posting this. It has been a great help. Hope so i will get the further updates in future.

Thanks,
Storage Containers

Seems crazy but I knew a guy who was doing this for months and still baffled by why things didn't quite add up and where he was losing money.