Adding margins

Discussion in 'Business Operations' started by cpllawncare, Aug 22, 2013.

  1. cpllawncare

    cpllawncare LawnSite Silver Member
    Posts: 2,659

    Where do you guys account for your margin markup? I'm specifically speaking on the design, install side of the business? Do you add it after all your cost are figured in or to each line item such as labor, material cost etc etc? Also, what is the industry standard everything I've researched says 25-30%. One other question where is indirect labor accounted for?
     
  2. TTS

    TTS LawnSite Senior Member
    Posts: 615

    Not exactly sure what you're looking for but I believe you need to look into an overhead recovery system and pick which one works best for you. ETW talks about his MORS in his picture thread but in essence if you have a good handle on all the numbers in your business MORS is the most accurate way of overhead recovery. Using a MORS system mark up would be assigned to each line item as each item is marked up a different percentage. If you're using a single overhead recovery system all items are marked up the same so it really doesn't matter if you do each line individually or one at the end. You can also use a labor hour recovery system where all mark up is done on the labor line item.

    It just scratches the surface but this article does a fair job of explaining the three most common recovery systems in this line of work http://www.landscapebusinesshelp.co...ch-overhead-recovery-method-do-you-recommend/

    If you're looking at actual mark up for your net profit that is generally tacked on at the end, once you have your overhead recovery in there you have your break even point, you then add on whatever profit % you need to make it worth it to you. Most businesses try to get between 40-50% profit, this line of work 25-35% seems much more realistic unless you have a specialty within a very defined demographic.
     
  3. cpllawncare

    cpllawncare LawnSite Silver Member
    Posts: 2,659

    Thanks That's exactly what I was looking for.
     
  4. birddseedd

    birddseedd LawnSite Silver Member
    Posts: 2,114

    I have no freakin clue what my markup even is....
     
  5. MasScape

    MasScape LawnSite Senior Member
    Posts: 258

    Construction in general uses single overhead markup and profit markup at the end. I have estimated for many different companies for years. I find I have an idea what I can charge for things so single markup doesn't work well when you get good deals on certain materials.

    I use spread sheet build up with cost columns, sale prices, markup percentage, labor hours, labor rate, and much more. It is complicated but it maximizes profits and I know exactly what I am making most of the money on. Like right now I make a killing on mulch since the supplier is such a deal. I would suggest building something yourself as you know your company the best. But I strongly believe in doing markup on each material based on what you can get it for / what you are able to sell it for.
     
  6. cpllawncare

    cpllawncare LawnSite Silver Member
    Posts: 2,659

    Mas, we are currently doing markup on materials but I don't think it's enough generally 10-15% on each item sometimes more if we feel we can get away with it we call it "FLUFFING" LOL for lack of a better term LOL! I've ran our numbers time over time and we seem to be covering everything but for some reason the markup never seems to show up in the end! Honestly! I embarrassed to admit it but I think our over head has gotten a bit out of hand this season and it's affecting our cash flow, the other issue is the weather has been ludicrous and it's really slowed things down, again affecting cash flow! we're showing profit but cash flow is horrible! We had no way of predicting this much rain, and we were projecting a banner year based on past numbers and such, it just never materialized, at least not yet. we had the best first qtr we've ever had but the second qtr has really sucked thus far dragging down the overall numbers drastically. I still consider myself a newbie really and am learning some hard lessons about risk and reward LOL!
     
  7. snomaha

    snomaha LawnSite Senior Member
    from midwest
    Posts: 858

    Are you using margin or markup? they are two separate things I see alot of contractors use wrong and leave money on the table.
     
  8. snomaha

    snomaha LawnSite Senior Member
    from midwest
    Posts: 858

    Example - if you are selling a tree to a customer and want a 20% profit margin you would take 100/.80 = $125

    If you want a 20% markup on the tree you would take 100 x 1.2 = $120

    At the end of the year your P&L tells you profit margin (sales-costs/sales) not profit markup. Could be the reason for some cash flow issues?
     
  9. cpllawncare

    cpllawncare LawnSite Silver Member
    Posts: 2,659

    That's a great point! I'm using markup AND margin actually, I markup individual products, labor but add margin to the overall finished estimate after all cost are figured in? Honestly, volume is my culprit, weather has decreased work load tremendously and it's starting to show a devastating effect on the bottom line. I always have money put back mostly to cover off season expenses but not this early in the year ARGH!
     

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