A Huge Pricing Mistake - Short #93

HVAC School - For Techs, By Techs · Apr 28, 2020 · 10m

Many contractors make a huge pricing mistake: confusing markup with margin. The distinction between those two things can be the difference between being profitable and losing it all.

If you want to mark up something that costs $10 by 50%, you multiply it by 1.5 to get $15. So, did we make a 50% gross margin? No; we only made $5 on a $10 transaction; if we take 10/15, we get o.66. So, we really only made a 33% gross margin.

When we factor overhead in, 33% is normally nowhere near enough. Not everything in the business will make money, and those costs become overhead costs. Businesses need to…