Over the years, I’ve learned that too many contractors determine their job price by borrowing someone else’s numbers. That can be an expensive mistake.
They’ll be at an association meeting and make a comment about pricing jobs. The guy sitting next to them says, “Just use .70 to get your price. Divide your job costs by .70. I’ve used it for years, and I make good money.”
Or they are hanging out at the supply house, complaining about business, and another contractor will say, “You’re probably pricing your jobs wrong. You need to be using a 1.35 markup. It works great for me.”
Is a .70 margin acceptable? Is 1.35 the correct markup? I don’t know – and neither do they. The factor you use to price your jobs needs to be calculated based on your overhead costs and your profit needs.
Using someone else’s figures can be financial suicide. If your overhead expenses are higher than theirs, you’ll lose money. If they don’t consider making a profit important, you won’t make one either. If you’re serious about wanting a successful, profitable business, you need to calculate your own numbers and use them correctly.
If you don’t know how to calculate your own markup or margin, check out the book, Markup & Profit Revisited. Pricing jobs is a critical factor in a successful business, take the time to learn how to do it right.