Material Mark Up

Capt

I have a small home repair/installation business, working mainly from time and materials. I am trying to compare notes on what others mark up the cost of materials. I'm talking of material ranging in price from $1 to $100, to $200, $300, $400, $500 etc. Some examples: What would you mark up for a faucet that cost $75--A sink, toilet, or vanity/top set that cost $120, $200, $300.

Mouldings&More

20% but you should find out how much it cost you.

Shamrock

20 percent here too.

Bob Kovacs

Depends on whether your overhead and profit is covered by your labor charges- if so, the material markup is pure profit. Also, are you getting paid for the time to shop for, pick up, and deliver the material to the job? If so, again your markup is pure profit.

Bob

Capt

My overhead and profit are covered by labor charge--but then again it seems I am doing a great deal of time chasing material, supplies and other 'details.' I do charge for material pick up time. Also is material taxable to the customer, or both material and labor. Most of my work is non capital improvement. By the way Bob, I am down the road from you in the Princeton NJ area.

Bob Kovacs

Capt-

If it's not capital improvement work, the whole job (material and labor) is taxable. I'm assuming from your question that you aren't charging sales tax, so you'd better get up to speed on what's required to do so, or you'll find yourself owing 6% of all of your past sales.

What type of work do you do?

Bob

Capt

I am charging tax on both mat'l and labor. But I questioned my self yesterday because a plumber came to my house to do some furnace service and he only charged me tax on labor, not parts.
Also does this mean I can purchase my stuff without sales tax? How does this set-up work?
I do a wide variety of installation, repair and punch list jobs. My market is mostly small scale stuff that the bigger contractors don't want. I hire out at 4 hour minimums.

Bob Kovacs

If you're paying the sales tax when you buy the materials, and then charging the customer tax on the material cost including the tax you paid, you're penalizing the customer (they're paying the tax twice).

If you're doing non-CI work, you should get a resale certificate and not pay tax when you buy materials. It's a PITA though, because if you go to HD and buy materials, paint supplies, and tools, only the "material" shouldn't be taxed- you almost end up doing two checkouts to avoid confusing the cashiers.

Another option would be to pay tax on all of your material purchases, charge the client just for the material costs and then add tax to the whole bill. You would then pay the state only the difference- the tax on the labor.

Check with your accountant (or the State) but I think the second option is the way to do it "right"- though most contractors don't do it right.

BTW- If you don't mind me asking, what kind of rates are you charging for a 4-hour block of time? Are you working in Princeton proper, or in one of the less expensive areas?

Bob

Capt

Thanks for the info. I do $200/$50 Hr blocks. (I wonder if too low) What is PITA and non CI work? I do a lot of work in Princeton, about 2/3rds-- rest surrounding towns.
So if I understand you right on option 2, charge the customer the pre-tax sticker price, then tax the total material and labor? I'm not clear.
Moreso how then do I mark up material?

Sonny Lykos

Capt, you're doing similar work as I do I use the Proof System. Are you familiar with that system?

Capt

.............No, what is it?

Sonny Lykos

Well, I just read the rest of the posts here, and you're already using it.

All overhead and profit is put on the labor rate. That's what I do, but I use a material mark up of 50%. In addition, any screws, nails, caulk, etc. is charged at $3 for each one, even if I only use 6 nails or 6" of caulk.

About 3 weeks ago I had two pair of running boards installed on my pickup. I has previously done a couple of favors for the owner of the store so he only charged me for one hour of labor - $95, and I learned his markup is between $70% and 100%.

BTW, the standard markup for dealerships on parts used in service work is - ready? - 400%. Got that info right from the horses mouth - a Chrysler dealership owner customer of mine.


Labor rate of $50/hr is too cheap. You’re losing money with each minute.

Pay yourself at least $30/hr.

Add to that your labor burden of about 55% with W/C - another $16, and now it’s up to $46/hr.

Add overhead of a minimum of 20% meaning a “markup” of about 25% or $12 of that $46 and now you up to $58/hr. $46 + $12) Now add profit of say 20% ($14/hr) for a grand total of $72/hr.

And even that is not a grand total because let’s say you work about 36 hours on jobs. How to you get paid for cleaning your garage, truck, estimating, all other NON-FIELD work, but work that is done for the business? That’s the other 15 plus hours per week. You don’t.

You should be charging $80 - $85/hr.
I don't work by the hour. Never will. I never want my customers to know what my labor rate is.

Capt

You have a point. I do actually charge by the job unless the info is too vague or the end can't be seen. You make out better often. A high number labor rate is often what kills customer's perceptions.
50% material mark-up hmmmm. I'm getting to thinking--material cost is actually one thing that a customer often doesn't bat an eye over--at least not usually for me.

Sonny Lykos

Here's what I do on those jobs where it's impossile to tell how long it will take.

"Mrs. Smith, it is virtually impossible for me to tell exactly how many hours it will take to to your job. That's now unusual, but the way most other contractors figure out a price on jobs like yours it to include a substantial contingency amount to cover themselves so they don't lose money. Personally I don't think that's very fair becasue if the job goes quicker, then I've made EXTRA mony on it.

So what I like to do is figure out the least it wil cost you and the most. Like between $400 and $550 (or $1500 to $1800). To me that's the fairest way of doing your job."

"Sounds fair enough to me, Sonny. When can you do it."

No labor rate given. No material cost given. But one more customer wo has just determined that Sonny is more fair that "the other contractors." And let's face it. "Perception" is everything when selling. "Their" perception of "us."

Mike Finley

Which raises another question, how do you guys handle it when you are marking up materials?

If you pay the tax on a $100 item when you buy it and mark it up to $140 whomever you are paying the tax to (State, county, city...) there is tax missing on the $40 of mark up.

Bob Kovacs

Here's an example with numbers, which should clear things up:

- You buy $100 of material for a job. Here in NJ, you'd pay $6 in sales tax.
- Labor on the job is $200 (including your markup)
- You mark up material 50% as Sonny suggested, so that's $50

Total to homeowner = $100+$20+$50 = $350. Here in NJ, you'd add $21 for sales tax (6%), so the bill to the h/o would be $371.

Now, when it comes time to send the collected sales tax to the State, you've collected $21, but you've paid $6 on the material already, which was sent to the State by the merchant you bought from- you just reimbursed yourself for it by charging the h/o for it. YOu now remit $21-$6 = $15 to the State, which is the sales tax on the labor, markup, etc.

The State doesn't care about "markups", OH, or profit- all they care about is getting the taxes they are due. On capital improvement projects, it's tax on materials only- so as long as you're paying tax when you buy materials, and you recoup that tax from the h/o, you're fine. For non-capital improvement projects (repairs, maintenance, etc), it's tax on the whole bill. That's easiest if handled as above.

And Capt- Sonny's right (damn, that's twice I've agreed with Sonny this week- now I'm getting nervous...lol)- you're not charging nearly enough, especially if you're working in Princeton. You're working in one of the most affluent towns in the Northeast- these people piss away $200 on a bottle of wine over lunch, and you're selling them 4 hours of your time, knowledge, and life for the same amount. If it was me, I'd immediately jack my rate up to $90-95/hour, and stop telling them what the rate is- just give them pricing based on that rate. If you're uncomfortable with a sudden change, go up $5-10 every few months, until you find that you're not getting enough work- then back it down.

Bob

Bob

Mrhandy

There is often alot of confusion on what to collect sales tax on as a contractor. This may help...

http://www.state.nj.us/treasury/taxation/

Look under the publication section

__________________
Bob

RSP Enterprises NJ

Gordo

When doing handyman "stuff", our man hour charge is $65 per man hour. So, with two guys on the job to make things roll quicker, we are billing at $130 per hour. Helper makes $20 per hour. All my OH is built into the hourly. Materials M/U is 30%-50% depending on item. Special order items M/U is 100% because of the PITA factor. Sonny and Bob are right as far as the "sticker shock" people might have but the numbers do not lie. You must charge at the minimum $75 an hour when working by your self. It really helps to have a helper if you want to make more per hour because it is "justified" in HO's perception.

It really helps to know your OH so you know your hourly rate, then when you are "bidding" or "estimating" you just factor how many hours the job will take (in your case Capt.) billing in 4 hour increments.

Capt., let your people know that you are no longer billing by the hour but by the job. When in doubt about how long the job might take give the "betweener" price as Sonny suggested.

Never feel bad about your rates even though $95 an hour sounds high it really isn't when you factor in your wisdom and expertise and taxes and vacation time and insurances and building fees and professional fees (Acct. and lawyer) and wear and tear on vehicle and admin istrative costs and slow times and sick days and job delays and...........

__________________
Looks like some pros were here.

Speedy Petey

Be careful with sales tax. Get the exact rules for your state right from the horses mouth. No offense to anyone here, but I would NOT trust information off the cuff and second hand.
I had no idea what I needed to do with sales tax. Even NYS's web site was vague, until I called tham and got the exact page to read.

Here are the rules for NYS:
http://nystax.custhelp.com/cgi-bin/n...YWdlPTE*&p_li=


Here's a cut:

For what services to real property is a contractor required to charge New York State sales tax?
Answer
Services to real property are classified as either a capital improvement or a repair, maintenance or installation service. Installation services include the installation of tangible personal property which remains tangible personal property after its installation.
A capital improvement is an addition or alteration to real property that:

• substantially adds to the value of the real property, or appreciably prolongs the useful life of the real property
• becomes part of the real property or is permanently affixed to the real property so that removal would cause material damage to the property or article itself; and
• is intended to become a permanent installation.

If a contractor does a capital improvement for a customer and the customer provides the contractor with a properly completed Form ST-124, Certificate of Capital Improvement, no sales tax is required to be collected from the customer. On the other hand, when a contractor performs a job that constitutes a repair, maintenance, or installation service to real property, sales tax must be collected from the customer.
For further information pertaining to capital improvements and repairs to real property, please refer to Publication 862, Sales and Use Tax Classifications of Capital Improvements and Repairs to Real Property.

__________________

Teetorbilt

Here, in FL, services are tax free. If you use any materials, the service AND materials are taxed even if you paid sales tax at the point of purchase. In my mind, this is double taxation and illegal.

The easiest way to circumvent this is to have the HO buy all of the materials.

__________________
You can't solve you're problems with the same level of thinking that created the problems.

Albert Einstein