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Construction Programs & Results Inc

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Calculate Markup on Sub Work?

by Michael Stone

Got a call the other day from a contractor wondering about the markup he should use on items from specialty contractors. His comment was that if he applied his markup to the work that a specialty contractor did, it would raise the price of the job so high he didn't think he could sell it.

My first question was, "Does the customer know what the price on your work should be?" He admitted that no, the customer did not know what the price should be. My next question was, "If the customer doesn't know what the price should be, why are you worried about it?"

Ask yourself those questions when the little goblin in your head starts telling you your price is too high. Unless you have extreme mental discipline, this is going to happen.

So, how do you deal with this?

If you have a specialty item as part of your work and it has little or no risk of a callback for repairs, then I would reduce my markup on that one item only, but only to 1.35 and no less. That does not mean I would reduce my markup on all my sub bids. This one only, and you must be sure that there is little or no chance of callbacks. A reduced markup will not leave room to pay for callbacks or warranty.

Your customer is not as interested in the price as they are in knowing they will get what they want in a timely fashion. They want a fair price and you need to quote a fair price.

Trust this old farm boy. It is easier, simpler, quicker and a whole lot smarter to just total up your costs, apply your markup and go sell the job. Quit worrying about price. If you will spend as much time studying sales techniques as you do worrying about the price of your work, you will sell more work than your entire company can build.

 

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