ÜBER DIESE EPISODE
Find out what's costing your contracting business jobs and profit: https://bit.ly/ContractorFightScorecard_mvm1
Are you adding 50% markup to your jobs and assuming you're making 50% gross profit?
You might be making a lot less than you think.
Most contractors know they need to charge more than a job costs to produce. They calculate their labor, add materials, apply a markup, and assume the difference is their profit.
But there's a problem.
Markup and gross profit margin are NOT the same thing.
If a job costs $1,000 and you add a 50% markup, your selling price is $1,500. That doesn't give you a 50% gross profit margin. It gives you approximately 33%.
And when you're making that mistake on every job, you can stay busy, grow your revenue, and still wonder where all your money went.
In this episode, Tom Reber breaks down the difference between markup and margin, why confusing the two can seriously underprice your contracting jobs, and how to build a pricing system that produces the gross profit your business actually needs.
Tom walks through real pricing examples to show why achieving a 50% gross profit margin requires a 100% markup on your direct job costs.
He also explains how your gross profit margin directly affects how much revenue you need to generate, how many jobs you need to sell, and how many leads your business needs just to break even.
And even when your pricing formula is correct, inaccurate labor, material, and subcontractor costs can destroy the margin you thought you were protecting.
You'll learn how to calculate your actual gross profit, build target margins into your estimating process, stop negotiating against your own numbers, and identify where your pricing might be costing your business money.
In this episode:
- Why a 50% markup only produces approximately 33% gross profit margin
- The difference between markup and margin when pricing contracting jobs
- How incorrect markup calculations can leave contractors busy but unprofitable
- Why achieving 50% gross profit requires a 100% markup on direct job costs
- How gross profit margin affects your break-even revenue
- Why lower margins mean you need more jobs and leads to cover the same overhead
- How inaccurate job costing can turn an expected 50% margin into 35%
- Why your estimating system should use actual costs and target margins instead of guesswork
- How discounting your price can destroy the margin your business needs
- How to audit your last five completed jobs to identify pricing and profitability problems
Chapters:
00:00 — Why 50% markup doesn't mean 50% gross profit
01:01 — The difference between markup and margin
02:06 — What else is costing your contracting business money?
02:35 — Why markup and gross profit margin aren't interchangeable
03:06 — How bad pricing math keeps contractors busy and broke
04:12 — How to price jobs at 50% gross profit
05:02 — How gross profit affects your break-even revenue
06:46 — Why inaccurate job costs destroy your margins
07:57 — Building your target margin into your estimating system
08:47 — Why you need to hold your price
09:36 — Your fight: Audit your last five completed jobs
11:10 — Find out what's holding your contracting business back
Your challenge:
Pull your last five completed jobs and find out how much gross profit you actually made.
For each job:
- Find your selling price: What did you actually charge the customer?
- Calculate your actual job costs: Include the real labor, materials, subcontractors, and every other direct cost required to produce the job.
- Calculate your gross profit margin: Subtract your actual job costs from your selling price, then divide that difference by your selling price.
- Compare your results: Did you produce the margin you originally intended, or did the job finish at a much lower percentage?
- Identify the problem: Were your estimated costs inaccurate? Did production take longer than expected? Was your markup formula wrong? Did you discount the price without adjusting your costs?
If you're pricing jobs expecting a 50% gross profit margin but your completed jobs are consistently producing 23%, 31%, or 37%, something needs to change.
The goal isn't just to find out that your numbers are wrong.
It's to understand WHY they're wrong so you can fix the actual problem.
Remember: If a job costs $1,000 to produce and you want a 50% gross profit margin, you need to sell it for $2,000.
That's a 100% markup, not 50%.
And if your job actually costs more than you estimated, your gross profit margin drops even further.
But getting your pricing right is only part of building a profitable contracting business.
Your gross profit still needs to cover company overhead before your business produces net profit. And pricing might not even be the biggest problem holding your business back.
If you're working harder, selling more jobs, and growing revenue without seeing the profit you expected, it's time to stop guessing about what's going wrong.
Take the free Contractor Fight Scorecard to identify your biggest business leak, get a clearer picture of what's holding your contracting business back, and find out what deserves your attention first.
It takes about three minutes.
https://bit.ly/ContractorFightScorecard_mvm1
Staying busy isn't the goal. Building a business that actually keeps enough of what it earns is. Know your costs, protect your margins, and stop letting bad pricing math determine your profitability.
#ContractorPricing #GrossProfit #ContractorBusiness
