Markup On Materials?

 
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Old 03-03-2012, 02:23 PM   #1
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Markup On Materials?


We do handyman and small remodeling work. Our company policy is to mark up all material purchases that can be directly tied to a customer by 30%. Overall this is working pretty well for covering the cost of all materials including the misc ones we don't directly bill. For example: I bill the customer my cost of the disposal + 30%. The markup covers cost of towels and any other misc materials I may need, like a new seal or even new drain pipe (if I have one on the truck). It also covers my risk and carrying cost of paying for their materials at the start of the job and not being paid for the job until some time later.
The problem is that from time to time, I have a customer who questions the cost of the materials. They see $113.88 for the materials and then challenge my invoice or bid with "I can buy a disposal at HD for $99, why do you charge me $113.88". Sometimes it is easy to justify the difference, other times it's not. Either way, by the time the customer asks the question, their opinion of me is already tarnished. Other times it is difficult to justify, for example, last week I bid for new blinds throughout a house. My cost for materials was about $500 then the 30% markup of $150. While she did question me on the cost of the blinds, I was able to accurately communicate to her the blinds I would supply were a much higher quality than the HD's entry level blinds. In this way I was able to avoid the markup question but this would be an example where I would have a hard time justifying the markup to the customer. Especially in this case too I would not want the customer to go buy them on her own for me to install because if she buys the wrong size then I have to spend extra time/trips to the house for her mistake.

Questions:
1) How much do you mark up for all materials?
2) How do you communicate this to the customer in a way that prevents needing to justify your materials price?

thanks
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Old 03-03-2012, 02:36 PM   #2
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Re: Markup On Materials?


Quote:
Originally Posted by Everend View Post
We do handyman and small remodeling work. Our company policy is to mark up all material purchases that can be directly tied to a customer by 30%. Overall this is working pretty well for covering the cost of all materials including the misc ones we don't directly bill. For example: I bill the customer my cost of the disposal + 30%. The markup covers cost of towels and any other misc materials I may need, like a new seal or even new drain pipe (if I have one on the truck). It also covers my risk and carrying cost of paying for their materials at the start of the job and not being paid for the job until some time later.
The problem is that from time to time, I have a customer who questions the cost of the materials. They see $113.88 for the materials and then challenge my invoice or bid with "I can buy a disposal at HD for $99, why do you charge me $113.88". Sometimes it is easy to justify the difference, other times it's not. Either way, by the time the customer asks the question, their opinion of me is already tarnished. Other times it is difficult to justify, for example, last week I bid for new blinds throughout a house. My cost for materials was about $500 then the 30% markup of $150. While she did question me on the cost of the blinds, I was able to accurately communicate to her the blinds I would supply were a much higher quality than the HD's entry level blinds. In this way I was able to avoid the markup question but this would be an example where I would have a hard time justifying the markup to the customer. Especially in this case too I would not want the customer to go buy them on her own for me to install because if she buys the wrong size then I have to spend extra time/trips to the house for her mistake.

Questions:
1) How much do you mark up for all materials?
2) How do you communicate this to the customer in a way that prevents needing to justify your materials price?

thanks
I good question to ask some of these people is , when they go out to eat do they bring their own steak with to have cooked becasue it is cheaper?

Markp is what keeps you in business. I try for 30% most of the time. At times it is hard to get that , but you can also up your labor to make up for it too.

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Old 03-03-2012, 02:37 PM   #3
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Re: Markup On Materials?


$0.00 to $0.49 x 6
$0.50 to $0.99 x 5.75
$1.00 to $1.49 x 5.5
$1.50 to $1.99 x 5.25
$2.00 to $2.49 x 5
$2.50 to $2.99 x 4.75
$3.00 to $3.99 x 4.5
$4.00 to $4.99 x 4.375
$5.00 to $5.99 x 4.25
$6.00 to $6.99 x 4.125
$7.00 to $7.99 x 4
$8.00 to $8.99 x 3.75
$9.00 to $9.99 x 3.625
$10.00 to $19.99 x 3.5
$20.00 to $29.99 x 3.375
$30.00 to $39.99 x 3.25
$40.00 to $49.99 x 3.125
$50.00 to $59.99 x 3
$60.00 to $69.99 x 2.75
$70.00 to $79.99 x 2.625
$80.00 to $89.99 x 2.5
$90.00 to $99.99 x 2.333
$100.00 to $139.99 x 2.25
$140.00 to $169.99 x 2.166
$170.00 to $199.99 x 2
$200.00 to $239.99 x 1.855
$240.00 to $269.99 x 1.823
$270.00 to $299.99 x 1.789
$300.00 to $349.99 x 1.75
$350.00 to $399.99 x 1.725
$400.00 to $499.99 x 1.6875
$500.00 to $749.99 x 1.6
$750.00 to $999.99 x 1.55
$1,000.00 to $1,499.99 x 1.5
$1,500.00 to $1,999.99 x 1.45
$2,000.00 to $2,999.99 x 1.4
$3,000.00 to $4,999.99 x 1.35
$5,000.00 to $9,999.99 x 1.3375
$10,000.00 to $24,999.99 x 1.3333
$25,000.00 to $49,999.99 x 1.33
$50,000.00 to $99,999.99 x 1.3
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Old 03-03-2012, 02:41 PM   #4
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Re: Markup On Materials?


Quote:
Originally Posted by 480sparky View Post
$0.00 to $0.49 x 6
$0.50 to $0.99 x 5.75
$1.00 to $1.49 x 5.5
$1.50 to $1.99 x 5.25
$2.00 to $2.49 x 5
$2.50 to $2.99 x 4.75
$3.00 to $3.99 x 4.5
$4.00 to $4.99 x 4.375
$5.00 to $5.99 x 4.25
$6.00 to $6.99 x 4.125
$7.00 to $7.99 x 4
$8.00 to $8.99 x 3.75
$9.00 to $9.99 x 3.625
$10.00 to $19.99 x 3.5
$20.00 to $29.99 x 3.375
$30.00 to $39.99 x 3.25
$40.00 to $49.99 x 3.125
$50.00 to $59.99 x 3
$60.00 to $69.99 x 2.75
$70.00 to $79.99 x 2.625
$80.00 to $89.99 x 2.5
$90.00 to $99.99 x 2.333
$100.00 to $139.99 x 2.25
$140.00 to $169.99 x 2.166
$170.00 to $199.99 x 2
$200.00 to $239.99 x 1.855
$240.00 to $269.99 x 1.823
$270.00 to $299.99 x 1.789
$300.00 to $349.99 x 1.75
$350.00 to $399.99 x 1.725
$400.00 to $499.99 x 1.6875
$500.00 to $749.99 x 1.6
$750.00 to $999.99 x 1.55
$1,000.00 to $1,499.99 x 1.5
$1,500.00 to $1,999.99 x 1.45
$2,000.00 to $2,999.99 x 1.4
$3,000.00 to $4,999.99 x 1.35
$5,000.00 to $9,999.99 x 1.3375
$10,000.00 to $24,999.99 x 1.3333
$25,000.00 to $49,999.99 x 1.33
$50,000.00 to $99,999.99 x 1.3

That formula looks too simple...
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Old 03-03-2012, 02:42 PM   #5
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Re: Markup On Materials?


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Originally Posted by Everend View Post
That formula looks too simple...
Works pretty easy in a spreadsheet.
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Old 03-03-2012, 02:57 PM   #6
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Re: Markup On Materials?


I just realized your charging 6x on the bottom end and your smallest markup is 30%. Q: Do you get your materials exclusively from construction suppliers or do you shop at the big box retail too? ie for an $87 ceiling fan you charge $217.50 plus 1-2hrs for installation? Even though the customer could buy their own fan and have HD install it for $87 + $115 (or whatever their install price is)


thanks
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Old 03-03-2012, 03:03 PM   #7
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Re: Markup On Materials?


Like sparky it depends on the material cost and how much I have to do for it. If I order a set of doors for $2500 I can't justify charging them 30% when I don't even have to pick them up (free delivery). If its a risky item such as the glass closet doors I picked up last week I will do a higher %. I also don't typically break things down into a separate labor and materials costs.
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Old 03-03-2012, 03:12 PM   #8
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Re: Markup On Materials?


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Originally Posted by Everend View Post
I just realized your charging 6x on the bottom end and your smallest markup is 30%. Q: Do you get your materials exclusively from construction suppliers or do you shop at the big box retail too? ie for an $87 ceiling fan you charge $217.50 plus 1-2hrs for installation? Even though the customer could buy their own fan and have HD install it for $87 + $115 (or whatever their install price is)


thanks
I generally buy at the supply houses, but will hit the Big Box stores if need be.


I couldn't care less what HD can install it for.
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Old 03-03-2012, 03:18 PM   #9
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Re: Markup On Materials?


One can defend a markup in a lot of ways. Primarily you are trying to cover the cost of being in a service business to serve the customer.

Look at the reasons that you feel you need to make the markup and convince yourself first. Then work on delivering that message in a manner that you feel is most likely to be acceptable to the customer.


If you don't feel you can successfully deliver the reasons behind a markup, shift the cost over to the labor side of the equation until you are confident you can sell the material markup (same result, but might be easier for you).
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Old 03-03-2012, 03:54 PM   #10
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Re: Markup On Materials?


Another easy way to avoid it is don't show you're materials and mark up.

The only customers that see mine are ones who I have a service contact with, and they've agreed to it beforehand.

On quoted jobs all they need to see is the final price. Its no ones business what you're numbers are except you.

If they insist on it show them total labor and total materials with your mark up included, that's it.

If you don't put it out there, they don't know the difference.
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Old 03-03-2012, 03:58 PM   #11
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Re: Markup On Materials?


Markup is different than profit.

a) the item cost x
b) it costs me y to plan the project
c) it costs me z to pick up and deliver the material(s)

x + y + z * markup = final cost

I also only warranty items I install. If it is customer provided I tell them it will be a service charge for any product related calls. If the buy a frig from Big Box and I install it, but the frig quits running, they aren't going to call me to service the frig. Same thing with a light fixture or blinds. If they supply the blinds and they fail to function, then I will charge them to service their product.
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Old 03-03-2012, 04:38 PM   #12
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Re: Markup On Materials?


Please don't get me wrong, I am not saying it is wrong to markup materials, but I personally do not fully understand the reasoning behind it.

As far I a see it, I am selling labor. So I figure my labor charge needs to be what is counted on to provide me everything I need to stay in business and make a profit.

If my work is bid work, then what does it really matter how much I mark up the materials? I just need to make sure that the final price includes all I need to cover everything I want and need.

If my work is time and materials, I simply make it clear that I charge full rate plus mileage for picking up materials that I do not keep on stock. This works good on my end, however the biggest draw back is that a $2 can of spray paint may end up costing my customer $50 when all is said and done (although, I often try to feel out a job as best I can and buy materials I think I might need on the way to the customers house. I still charge for my time, only my time used is much less).

I say if justifying your markup make you uncomfortable, than do away with it. Raise you other rates to make up the difference. In the end, isn't it really the final price and results that the customer cares about?

I'm sure there are plenty of flaws in this greenhorns logic. So please feel free educate me.

Jason

Edit: After thinking about this, I do think that guys who keep keep common items in stock (on truck) should be compensated with a fair markup for the hassle of keeping the items on hand.

Last edited by jasonsservices; 03-03-2012 at 04:51 PM.
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Old 03-03-2012, 04:49 PM   #13
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Re: Markup On Materials?


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Originally Posted by jasonsservices View Post
Please don't get me wrong, I am not saying it is wrong to markup materials, but I personally do not fully understand the reasoning behind it.

As far I a see it, I am selling labor. So I figure my labor charge needs to be what is counted on to provide me everything I need to stay in business and make a profit.

If my work is bid work, then what does it really matter how much I mark up the materials? I just need to make sure that the final price includes all I need to cover everything I want and need.

If my work is time and materials, I simply make it clear that I charge full rate plus mileage for picking up materials that I do not keep on stock. This works good on my end, however the biggest draw back is that a $2 can of spray paint may end up costing my customer $50 when all is said and done (although, I often try to feel out a job as best I can and buy materials I think I might need on the way to the customers house. I still charge for my time, only my time used is much less).

I say if justifying your markup make you uncomfortable, than do away with it. Raise you other rates to make up the difference. In the end, isn't it really the final price and results that the customer cares about?

I'm sure there are plenty of flaws in this greenhorns logic. So please feel free educate me.

Jason
What about the labor to provide a quote? The labor to lay out the job? The labor to go get the said materials? The labor after the job is done, bookkeeping, billing, paying suppliers, etc.etc.etc.

Do you charge for that labor as well? If so, how do you justify it to your customer: "Wait, you were only here for 6 hours, and you're charging me for 14?!?!"
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Old 03-03-2012, 04:52 PM   #14
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Re: Markup On Materials?


Jason, everything has a markup associated with it. To add the markup for your materials in your hourly rate is no different than marking up the materials themselves. You are just adding the markup to rate, which makes tracking it a whole lot harder.

Why should I charge someone exactly what I paid for it? I lose every time. It costs me time to drive, time to pick out and pick up, and time to deliver. In the end I would be losing money by not charging a markup. It's the cost of doing business. Am I making my profit on materials, nope. But I also don't want to lose my ass on them either. 30% is standard for me, it seems to cover all my costs and give me a little cushion so that I am not "nickel and diming" every single unforeseen need.
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Old 03-03-2012, 04:57 PM   #15
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Re: Markup On Materials?


Quote:
Originally Posted by jasonsservices View Post
Please don't get me wrong, I am not saying it is wrong to markup materials, but I personally do not fully understand the reasoning behind it.

As far I a see it, I am selling labor. So I figure my labor charge needs to be what is counted on to provide me everything I need to stay in business and make a profit.

If my work is bid work, then what does it really matter how much I mark up the materials? I just need to make sure that the final price includes all I need to cover everything I want and need.

If my work is time and materials, I simply make it clear that I charge full rate plus mileage for picking up materials that I do not keep on stock. This works good on my end, however the biggest draw back is that a $2 can of spray paint may end up costing my customer $50 when all is said and done (although, I often try to feel out a job as best I can and buy materials I think I might need on the way to the customers house. I still charge for my time, only my time used is much less).

I say if justifying your markup make you uncomfortable, than do away with it. Raise you other rates to make up the difference. In the end, isn't it really the final price and results that the customer cares about?

I'm sure there are plenty of flaws in this greenhorns logic. So please feel free educate me.

Jason
It really doesn't matter if you markup materials or not. No matter what, one way or another, you will have to charge more than labor and materials or go broke.
For instance, It takes 30 minutes to paint an exterior door and a quart of paint is about 16.00. If you only charge labor plus materials what do you come up with? My labor is around 22/hr for my 15/hr guys. so 22+ 16= 38.00? Not enough. What pays for advertising,Gas, Insurance,Time spent on bids,Phone bills, Internet,Clothes,Liability, Comp,Tools, and all the rest you need to stay in business? Labor+Materials+Overhead+Profit= price. Same door. Labor 40.00, Materials 16.00 Overhead and profit Price = 84.00. or better Have a Minimum charge or service call. Mine is 80.00 so the door would cost 80.00 plus 16.00 for paint plus 5 for van supplies(tape, thinner, etc.) so for me the total price would be 101.00. That's why you have to mark up or some way account for all of your expenses.
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Old 03-03-2012, 04:58 PM   #16
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Re: Markup On Materials?


Quote:
Originally Posted by 480sparky View Post
What about the labor to provide a quote? The labor to lay out the job? The labor to go get the said materials? The labor after the job is done, bookkeeping, billing, paying suppliers, etc.etc.etc.

Do you charge for that labor as well? If so, how do you justify it to your customer: "Wait, you were only here for 6 hours, and you're charging me for 14?!?!"
If the work is for seen to go to that level, then I would prefer to do a bid, and yes my bid would account for that time. But on time and materials jobs, I usually don't have that much wasted time to make up. But yes, I do charge for it. I have just added a little disclaimer to my invoice that notes: Time on job site does not always correspond with billed labor hours, blah, blah, blah.

But to be fair, much of my business is from repeat customers who trust me and know that I am not going to take advantage of them. They pretty much accept my bill with no questions.
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Old 03-03-2012, 05:15 PM   #17
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Re: Markup On Materials?


You need to pick up the book "mark up and profit".

It will open you're eyes as to why you NEED, SHOULD and DESERVE to mark up your materials.

When you go out to eat, the restaurant doesn't give you your meal at cost and than charge you 10x the waiter and bus boys time do they?
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Old 03-03-2012, 05:34 PM   #18
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Re: Markup On Materials?


In northern MI I found a plumber thatwas good and I could trust totally since I was not always around much. I would call him and tell him what I wanted and he would do it.

Since no one locked doors we would always use the back door and take off his boots (100 year old added on/rehabbed small house) and do what was necessary. When I got home I would look on the kitchen counter and find some little green pieces of paper (like an old waitress order pad) that listed the time and then every item used (price, number) and every piece of copper with on mark-up, but I did not have the time to check every price. He was just honest and accurate. There was no mark-up, except for the unique water heater.

One time I had an old, old water heater hatch a leak and I called him and he got the low profile gas heater and installed it quickly without a problem. The night before Thanksgiving, he knocked on the door and wanted to check out the water heater he installed the day before. He assumed we would have a dinner and need to use the dishwasher and wanted to make sure the new heater was working properly.

When he went home he either drove his Lincoln or C5 Corvette, but he was an accurate frugal old time contractor that made money and I did not question his material prices ot his hours and the rate was reasonable.

It is unusual when you are in a situation like that and find a good, honest contractor that does what is needed in an older (junk) home.
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Old 03-03-2012, 05:47 PM   #19
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Re: Markup On Materials?


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.....What pays for advertising,Gas, Insurance,Time spent on bids,Phone bills, Internet,Clothes,Liability, Comp,Tools, and all the rest you need to stay in business?........

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Theft
Uncollected Money
Collection fees
Unbillable Hours
Commissions
Call Backs / Warranty work
Shortages
Bad Checks
Delivery
Credit Card Sales
Drug Testing

Legal
Legal advice
Law Suits
Incorporation / LLC fees

Advertising
Marketing
Business cards
Signs
Radio / TV
Newspaper
Flyers / brochures
Material Purchases
Inventory

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Wages
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Dispatcher
Answering Service
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Old 03-03-2012, 05:51 PM   #20
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Re: Markup On Materials?


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Originally Posted by 480sparky View Post
Business Cost List

Building
Building
Warehouse Space
Trash Removal
Lawn Care
Snow removal
Upkeep & Repairs

Office Expenses
Computers
Stationary
Copy machine
Fax machine
Forms
Printing
Software
Office Equipment
Computer maintenance
Files
Postage
Office Supplies

IT
Internet service
Email accounts
Web site
-Initial creation
-Updating
-Maintenance
GPS services

Benefits
Vacation Pay
Holiday Pay
Uniforms
Uniform Maintenance
Unemployment
Bonuses
Incentives
Retirement Plan
Christmas Party

Taxes
Property Taxes
Tangible Taxes
Pay Roll Taxes
Income Taxes
Sales Tax

Training
Management Training
Office Training
In-House Training
Tech Training
Mfg. Training
Training Equipment
Safety Training
Update classes
License testing
OSHA compliance
RRP compliance

Insurance
Building Insurance
Liability Insurance
Employee Insurance
Life Insurance
Business Insurance
Workers Comp.

Utilities
Gas
Electricity
Telephone / Fax lines
Internet Service
Toll Calls
Telephones
Pagers/Cell Phones
Radio Maintenance

Vehicles
Vehicle Maintenance
Ladder Racks
Interior bins
Fuel
Truck Signs / lettering / vinyl
Tires

Financial
Accounting
Loans
Tax Preparation
Interest
30+ Day Receivables
Bank Charges

Travel
Hotel
Meals
Airline / vehicle

Unique to the electrical trade
Permits
Licenses
Bonds
Inspections
Trade Association
Subscriptions
Memberships
Dues
Retainers
Safety PPE
-Lock-out/Tag-out kits
-Fall prevention harness
-Arc-flash clothing
-Hard hats
-Safety glasses
-Hearing protection

Tools
Company Tools
Safety Equipment
Ladders
2-way Radios
Test Equipment
Replacement Parts
Parts Storage
Damages
Tool Replacement
Job site storage

Misc.
Trips to Supply House
Theft
Uncollected Money
Collection fees
Unbillable Hours
Commissions
Call Backs / Warranty work
Shortages
Bad Checks
Delivery
Credit Card Sales
Drug Testing

Legal
Legal advice
Law Suits
Incorporation / LLC fees

Advertising
Marketing
Business cards
Signs
Radio / TV
Newspaper
Flyers / brochures
Material Purchases
Inventory

Labor
Wages
Salaries
Dispatcher
Answering Service
I love this list and use it now when someone questions my pricing. Shuts them in their tracks. They usually say, I didn't think of all that goes into doing what you do.

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