Hello Jim,
I regret not being able to contribute a little bit earlier but it's been (and still is a busy week).
First, markup and Gross profit margin (GPM ) are 2 different things. They are different ways for determining the amount of gross profit from the selling cost of an item. Worth looking into but probably more than we can go into here since this will probably run long.
Second, we need to consider the amount of labor we charge for installing, applying, or otherwise providing an object (since we're talking about items.) That's usually what we're charging for the direct cost of installing the item but you can cover the other expenses in this category as long as you're aware of them.
Third, there are a number of direct costs that are attributable to a specific item (or group of items). I'm going to switch over at this point and just say "system" since we're talking about the specific case of a Dampp-Chaser system.:
- Shipping
- Time directly attributable to that job that isn't necessarily direct labor.
- selling the item
- advising on the item
- teaching how to use the system
- ordering the system
- receiving the system
- loading up the system
- Paying for the system
- The value of your money over time if you maintain inventory
- Training in how to install the system.
- Recycling/disposing the packing the materials
Then there are indirect costs that accrue every minute that you're working:
- Overhead
- Paying yourself and/or your assistants (office, shop, etc.)
- Insurance
- Utilities
- Retirement
- etc.
- Tax on your profit from the sale of the item
- What Norm Neblett used to call the EI factor (the Eat-it factor - those things that you forget to cover or that you fail to consider on a job. In other words, if the client isn't paying for it, the manufacturer isn't paying for it (in a warranty situation), or your boss doesn't pay for it (if you're an employee of someone else) - then you eat the loss and it doesn't taste very good.)
So, I figure my billable time in units of 6 minutes (.1 hour) for simplicity of calculation. If it takes me 6 minutes to order an item, 6 minutes to receive an item (check the packing slip, unpack from the other items in the shipment, etc.) at least 6 minutes to enter the invoice and pay the invoice (actually my office assistant does that part but I have to pay her as well), 12 minutes to explain the use of the system after I finish the installation - then we have .5 hours where I could have been doing something else to make money. So, I need to make at least that much profit off the sale in unrealized direct labor. Then, I need to keep the lights on, pay myself, account for the fact that I have had to charge enough in labor to cover the cost of the trip, pay personal expenses (like insurance, my paycheck, plan for retirement) and cover the cost of replacing tools as they are used up (screwdrivers, rechargeable batteries, etc.).
Hopefully, after all of this I am able to derive some net profit that then goes back into growing my business, expanding my skills & offerings, paying off my debts, making sure that I have sufficient funds to meet my financial commitments (including paying myself!)
So, depending on how your business is set up and what kind of overhead expenses (including taxes) that you face in your state and locality, the percentage needed to meet the minimum considerations can vary.
Your time is valuable and you're providing a valuable service and convenience along with your expertise. Now you don't have to spend so much time that you lose money due to losing all of your time to figuring out how much something costs - as long as you're aware of those costs and make sure that you're covering them. And we haven't even gotten into the value of your inventory in an inflationary environment.
If a cap of 10% markup is specified then it's worth looking at the definition of the "cost of the item" since there may be more than just the wholesale price of an item. Honestly, most of us would lose money at a 10% markup if it doesn't even include shipping.
Another consideration, if we want this trade to continue into the future, the older techs among us have to establish and maintain prices that can support the young technician coming into the trade. If we don't then we'll be the last generation and fade away as the costs keep rising and the margins shrink.
Just a few quick thoughts from a business perspective. If you'd like to pian up a little more along these lines, we've tackled some of these issues (while scrupulously avoiding any issues regarding anything that could run afoul of the antitrust laws) in our Atlanta chapter meetings.
Also, don't make me think about the cost of writing this since I have to get back to writing a couple of action rebuild estimates. <grin>
I hope this helps a little.
Best regards,
Allan
------------------------------
Allan Gilreath, RPT
Registered Piano Technician & President
Allan Gilreath & Associates, Inc
Calhoun, GA
706-602-7667
allan@allangilreath.com -
www.allangilreath.com------------------------------
Original Message:
Sent: 02-28-2024 10:24
From: James Sasso
Subject: Cost Mark-up
Thank you everyone for your helpful advice. The head of the music department commented on the need for the climate control and couldn't believe how cheap it was even though we had never arrived at a dollar amount. I'm assuming he must have got some information off the Internet, etc. Luckily, this is a school system I've been doing business with for a very long time so it should be easy to arrive at mutual expectations. I expect to go with a very minimum amount of markup to cover the cost of the unit shipping and travel.
One of the pianos I installed it in was a P 22 that sounded like a PSO instead of a piano. The humidity was 11%, the top octave was almost a full step flat, and the B/T break was at pitch, plummeting flat in the lower half. The climate control will definitely help.
Jim Sasso RPT
Sent from my iPhone
Original Message:
Sent: 2/26/2024 1:02:00 PM
From: Wim Blees
Subject: RE: Cost Mark-up
Truth be told, I sell parts to the university for which I work at cost, includes shopping.
There is a difference between a mark up on parts and an estimate. If you gave an estimate, it would include the cost of the parts. So if you sold the parts at a certain amount, which is assumed is twice the wholesale price, then you're good to go.
Wim.
Sent from my iPhone
Original Message:
Sent: 2/26/2024 9:43:00 AM
From: Nancy Salmon
Subject: RE: Cost Mark-up
I agree with a mark-up, but there are variations.
State of Maryland allows only 10% markup if sold to a state institution.
The profit margin at a bookstore when I worked there, was only 40%.
Grocery store markups are more marginal.
As with estimates; there are places where one cannot legally go more than 10% over an estimate.
Nancy Salmon, RPT
LaVale, MD
Original Message:
Sent: 2/26/2024 7:43:00 AM
From: James Sasso
Subject: Cost Mark-up
Hello everyone;
I know that it is customary and reasonable in many trades to double the price that is paid for the materials used in the trade, whether it's plumbing or electric, etc. I've done it in the piano trade with respect to small parts, hammers, flanges etc. (items that cost less than $10) but my question is this: is it customary to double the price of the climate control system formally known as Dampp-chaser and pass it on to the customer? I've had a lot of installations in school system pianos as of late and wanted to get some feedback from you all regarding billing. Any comments are appreciated. Thanks.
Jim Sasso RPT
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