Many contractors tell us they use a variable markup or margin to price their jobs. There is a widespread belief that using a variable pricing methodology works best. The mindset is that sometimes you have to adjust your price to get the job.
It might be a widespread belief, but too often we’ve seen contractors lose money in the long run when they adjust their markup based on the size of the job or for some other reason.
Why do they lose money? It’s easy to reduce your markup for a particular job. But when a job appears that should have a correspondingly higher markup, there are too many reasons to not raise the markup. We’re human, and we fall victim to that human trait called fear.
We fear that if we don’t get our price “just right”, we won’t get the job. We fear that if our price is too high, we’ll be considered dishonest. We fear that if we don’t cut our markup just a smidgen, we won’t be able to keep our employees working. Having sold both remodeling and specialty trades, I’ve been down that path and know that fear. We fear, fear, fear and as a result we don’t discipline ourselves to use the numbers that are needed to maintain a good profit percentage.