5 Electrical Markup Strategies for Successful Electrical Estimators
January 12, 2022 6 min read
Using the same electrical markup strategy for every job you bid means you could be missing out on profits. For some electrical estimates, a straight percentage markup might not even cover your overhead. Successful electrical contractors use different electrical markup strategies when estimating different types of jobs.
Not all electrical jobs are created equal. Each job you bid on has different considerations — large jobs, small jobs, difficult jobs, highly competitive jobs, and jobs where the owner furnishes materials. Each of these jobs should have a different markup calculation.
Learn how to adjust your markup for maximum profit in every situation.First, some definitions.
What is Markup?
Total markup is overhead plus profit.
What is Overhead?
The total of all the recurring costs that are part of running your business. Overhead includes rent/lease, vehicle payments, utilities, salaried employees, equipment, insurance and more. These costs are consistent no matter how busy your shop is. Overhead does not include materials, labor, or job expenses such as permits or equipment you need to complete the job.
Notably some companies view Project Manager hours as part of the cost of a job, while others do not. Just be consistent with how you decide your overhead.
Typically, overhead for electrical contractors is 13% to 20% of total sales.
What is Profit?
Total revenue minus expenses, both fixed expenses and job expenses, is profit.
The goal is to maximize profit. Here are five scenarios where your electrical markup formula of overhead plus profit should change.
Strategy #1 Small jobs
Small jobs of should have a higher markup because they use more resources. For every job you must order material, record your payroll, etc. so smaller jobs use a greater percentage of resources. Consider a higher markup closer to the 20% end of the markup range for small jobs that are worth tens of thousands of dollars.
Strategy #2 Large jobs
Jobs worth hundreds of thousands of dollars don’t require high markup because large jobs use a proportionately smaller amount of company resources. To ensure that you’re in line with other bidders, consider markup that’s closer to the 13% side of the range
Strategy #3 Difficult jobs
Jobs that are more complex tend to utilize more resources, and therefore more overhead. Consider adding a higher markup to make up for the fact you’ll likely have to allot more management resources and more supervision to complete difficult jobs on time and under budget.
Strategy #4 Number of competitors
Be more competitive and trim your markup percentage when there are more bidders for a particular project. Conversely, you can add a larger markup when the number of bidders is low. Whenever possible you should ask how many contractors are bidding on the job so that you can adjust your markup accordingly.
Strategy #5 Owner furnished lighting or gear
The most complicated jobs for electrical estimators are when the owner provides some or all of the materials. It's critical to adjust your electrical markup strategy because you will be doing the same amount of work and you won’t have the option to mark up your material when materials are partly or completely provided.
Here are three different electrical estimating strategies to make sure your markup covers your overhead and brings a profit. Watch our video for examples of how to calculate markup for jobs with owner furnished materials.
- Raise % markup on all costs.
This is the simplest strategy. One, define your overhead percentage by dividing monthly overhead by monthly sales. Two, calculate your reciprocal (1 divided by 1 minus overhead percentage), which is the markup percentage you’ll need to cover your overhead. Three, add your profit.
- Raise the % markup on labor.
While your results for the percentage markup for labor might seem high, remember that in the case when owners supply materials electrical contractors are primarily providing labor to get the job done. Calculate your monthly overhead by dividing monthly overhead by monthly labor. Then calculate your reciprocal (1 divided by 1minus overhead percentage).
- Add a $ per hour markup on your labor.
This is a calculation of how much to add to your hourly labor cost to recover your overhead. First, determine the total number of labor hours you pay per month. Second, divide your monthly overhead by the total monthly labor hours to show your total overhead cost per hour. Add the overhead cost per hour to your average labor cost per hour to determine how much to charge per hour to recover your overhead.
While it’s simpler to use the same electrical markup strategy for every job you bid, you could be leaving money on the table. You can maximize your profit by making simple adjustments in your markup in these five scenarios.
Electrical markup strategies are only one piece in the puzzle when creating your electrical bid. Read our Complete Guide to Electrical Estimating for more information.
For more information, you can read our blog to find out how to avoid 8 common electrical estimating mistakes to learn how to keep more profit in your pocket.
This is our video that we based this blog post on: