A Business Perception

If you were running a business and got your parts at a 45% discount, what would you consider to be a reasonable mark-up when charging them out to clients?

Cheers,
Ronnie

20-25%

That would depend on whether it was a permanent discount or a one off.
Nothing worse than prices changing every time you get something done.

If it is a permanent discount, then slap on whatever percentage you are happy with. Retail is 100%. But I know of other service type businesses who put on anything from 15% to 30%

If the discount is only likely to be short term, then put your markup on the normal price and be happy to make a bit extra for a while. Or offer them as a "special" for as long as the discount lasts.

These things can all make for a nightmare on the book keeping side of things.

In our case our supplies are about 50% off normal retail prices. From time to time our supplier has month long discounts and offers and we absorb those which make up for the hickups we might have from time to time.

When I did my business management course through Housing Ind. Assoc of Aussie, I was told:

Materials at trade price +
Total employee (yes you as well as an employee) costs (including any employee benefits such as super) incl workers compensation levy.

Total

then x 18% for business on costs (ie accountants fees, telephone, maintenance on vehicles, advertising etc etc).

= total cost to business to undertake job.

then add whatever profit you and the business want to achieve.

However, and the biggie is what your opposition is charging. We are mid priced on the main core activity in our business, yet make better profits on other aspects. One activity slightly supports the other because of opposition charges.

If you find the opposition charging silly prices that cannot sustain their business for the sake of undercutting yours, well they won't be around for long.
You will lose out some jobs to them but keep yours at sustainable levels. In the past we have thrown in "deals" for customers such as a free whirlybird or the like.

it depends on the business really.

Service businesses who obtain their income from the hourly labour fees, basicly just charge parts out with a markup that reflects storage and inventory control costs.

others in retail put on a LOT higher markup on the goods, since the staff wages are paid for by the goods sold.

as such there's no one right way to do it.

I'd just apply your usual markup on the discounted price, whether that is a service or retail markup...

A very quick & easy way is double the cost of the item to you You absorb the freight & any other costs, ie you may have to hold the item for some time before you are paid

Thank you, it was interesting to see the varying responses.

This is a mechanical business so therefore service rather than retail. The 45% discount to us is permanent. The reason for the question is that I've been adding on 35% to our price and suddenly Kevin took a hissy fit and said I was charging too much. I don't think so given that more often than not we are carrying this debt well into the following month and longer. Nobody has complained and they are still getting their filters, batteries etc. cheaper than they would if they had to buy them themselves at retail price.

I should add that our charge-out is $45.00 per hour + GST. Cheap even by Kaitaia standards where the norm is $60.00 per hour + GST.

Now what do you think? Am I being "greedy"?

Cheers,
Ronnie

Who is Kevin?

And no, I don't think you're over-charging. That sounds pretty fair to me.

PG, Kevin is my OH - although he would like to think he's the boss but I have other ideas about that

I don't think I'm over charging either - I'm sure that some of our bigger customers would have said something by now and business would be tailing off rather than getting bigger than we can deal with. Any HD mechanics out there []

Cheers,
Ronnie

If it cheaper than what the customer could go out and get the part for themselves you are being more than fair IMO (given that you are also saving the customer the hassle of ordering, freighting and checking they have the right part)

Sounds fair to me too Ronnie. But I do think you should up your charge out rate. After all, you are in business to make money.

Perhaps K needs to use someone elses services and see how they charge like a wounded bull. Then he may appreciate your good work at keeping your charges very reasonable.

If the customers are happy and you are happy with what you are charging, why change it? Just ell K to butt out of the bookwork department[] as you have it all under control.

sounds fair to me

Ah, Kevin should stop complaining then, with such fantastic bookkeeping support

Ronnie, if others are charging that amount, while I'm not advocating that you match it, perhaps you should consider increasing it. My Dad is a jack of all trades, which is very useful for his clients who have lots of trades they require. His original hourly rate was $25 an hour but after pointing out what his clients would have to pay if they had to get an expert for all the things he does, we managed to convince him to take it up to $30, then $35.

He was worried sick his clients would turn away, but all that happened was two got the pip (cheap buggers!) and stopped using him for about a week, before they got some quotes and realised Dad was still cheap. And Dad got up and went out to get more business and instead of relying on a few big customers, he now has a much better range of customers both big and small that fill in the gaps he had, and give a more interesting range of jobs.

There seem to be two "types" of self-employed worker in NZ. The over-hyped expensive types, and the "I'm not worth that much" types. I think the second group need to recognise they are worth (and worthy) of more.

PG tell your Dad we are being charged $45 per hour for the additional bits on our build that the insurance isn't covering.... and you know my experiences so far with that issue.

Hubby is up to about $40-45 per hour on his building work plus GST but with petrol costs etc is looking at raising that as he is doing mainly smaller jobs now with lots of running around/stuffing around time...

Builders used to get a cut of the materials with trade discounts, but nowadays any Joe Bloggs can walk into a supplier and get the same discount so that no longer happens - and hourly rates have increased as a result to partially compensate for that. Swings and roundabouts...[]

Plenty are adding a travel rate to that as well.