October 24, 2012 by Mike Draper
If you’re a renovation contractor and you don’t know the difference between Markup and Margin, you stand an excellent chance of going out of business. Or working for next to nothing.
Remember, a 43 percent markup only gives you a 30 per cent margin!
If a client asks you for a price, and you mark up all of your costs (including your overheads) by 43 percent, or multiply them by 1.43, you will end up with a 30 percent gross margin.
That 30 percent gross margin contains your overheads and your profit. If your overheads are 20 per cent (they might be 25 per cent!), your final profit on the job will be 10 per cent.
Now imagine that you got Markup and Margin mixed up, and you only marked your work up by 30 percent. That is only a gross margin of 23 percent! If your overheads are 20 percent, you make only 3 percent profit. If your overheads are 25 per cent, you will lose 2 percent on the job. You will have worked hard and lost money!
Confusing Markup and Margin, underestimating your overheads, and quoting jobs at 30 percent or lower markup, will soon have you pumping gas for a living.
To get more business tips like this, keep checking here, or visit Renovantage and consider joining our organization. We can provide you with leads for profitable work, coach you on better business practices, and you can share with and learn from other renovation contractors just like you who don’t want to work hard all their lives for next to no money.