LADY GAGA MAKES MONEY – SO SHOULD YOU!
Old news maybe, but read up anyway:
- Margin is percentage of the final selling price that is profit.
- A markup is a percentage added to the cost and the cost and added percentage becomes the selling price.
Markup and margin are different, a selling price with a margin of 50% results in more profit than a selling price with a markup of 50%.
Marking up your costs by 50% results in a margin of 33% or 33% gross profit.
Overheads (like rent, fixed costs, corporation tax, wages, etc) still need to be deducted before you can know if you made money or not. Your net profit is what’s left after everything else has been accounted for.
Wages are not profit, if you make $50 an hour you have a job that pays $50 an hour. If you want to be paid $50 an hour and have money left over after all other costs are paid, that’s your net profit.
Sell a job for $1000 and if all your costs and overhead and wages come to $998.25 you have a net profit of $1.75.
That’s why you need to set prices with minimum acceptable margins.
What should you markup as a contractor?
For remodelers in residential construction most experts agree that a minimum markup of 50% is needed to stay in business. Some contractors will need more, some less but if you work for less you might want to just go to work for someone else and let them take the risks of being in business. A 50% markup is not only fair, its necessary for you to live with pride and dignity.
Here are some markups for other businesses:
- Jewelry sales: 100 to 400%
- Wine at a restaurant: 300%
- Starbucks coffee: 400- 600%
- Clothing: 250- 350%
- Designer eyeglasses: 1000%
- Movie theater popcorn: 500%
- Over the counter drugs: 300- 3000%
Even getting buried has markups involved, a casket is generally marked up 300% to 500% before you get to lay in it.
My point is, being afraid to markup 50% makes no sense, everything you and your family purchases is most likely marked up quite a bit higher than 50%.
Margin vs Markup Chart
|% Markup||=||% Gross Profit|
|15% Markup||=||13.0% Gross Profit|
|20% Markup||=||16.7% Gross Profit|
|25% Markup||=||20.0% Gross Profit|
|30% Markup||=||23.0% Gross Profit|
|33.3% Markup||=||25.0% Gross Profit|
|40% Markup||=||28.6% Gross Profit|
|43% Markup||=||30% Gross Profit|
|50% Markup||=||33% Gross Profit|
|75% Markup||=||42.9% Gross Profit|
|100% Markup||=||50% Gross Profit|
Rock and Roll uses markup and margin
Lady Gaga, the Rolling Stones and many if not most successful artists markup their tour costs by 400% or more. That means if Lady Gaga spends $25,000,000 on costumes, transportation, food, marketing, roadies and musicians, then Lady Gaga expects the tour to pull in $100,000,000 and that also means Lady Gaga has a markup of 400% leaving a tidy profit for some high style living. Sure your not Lady Gaga or Mick Jagger but you aren’t chopped liver either so markup fairly at 50 or 60% and enjoy the fruits of your hard labor and risks.