Are you making the pricing mistake that 93% of our private clients made prior to learning this little trick?

If you take your materials and labour (and subcontractors) cost and simply add a “margin” – something like 15% or 30% and assume that’s plenty then keep reading.

What I’m about to say could change your business.

The mark-up you place on your labour and materials is not the same as the profit margin you get to keep.

Here’s a quick example.

Let’s say you quote a job and the material and labour cost is $100,000.  You add a 30% mark up and the quoted price is $130,000.  No problem there.

But the margin is not 30%. 

Here’s how you work out the gross margin.

Sale Price – Cost Price divided by the Sale Price.

In this case $130,000-$100,000 divided by $130,000 – which equals 23%.  Not quite the 30% you were hoping for!

Now the margin you get to keep is 23%.  If you want to keep a 30% margin your mark-up will have to be around 43%.

The key here is to price for a target margin.  Use a high enough mark-up to achieve your target margin.

It’s that simple and yet 93% of businesses solely use mark-up when pricing.

Let me know if there is anything specific with your pricing we can help with.

Here’s to profitable pricing.

Tony

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