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Understanding Price Mark-Ups
Understanding Price Mark-Ups
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Written by Aspire Software
Updated over a week ago

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Understanding Your Pricing

Pricing refers to the price of the services based on the cost of labor and resources (materials, equipment, subcontractors, etc.) required to perform the work. Service pricing is established in Aspire based on the following inputs:

  1. Establish cost for each item in the item catalog through the Items Search List screen.

  2. Establish branch pricing for items in certain branches where necessary.

  3. Establish markups and profit

  4. For opportunities that will be invoiced based on time and materials (invoice type of T&M), pricing is specified on the services included in the estimate.

Essentially: (Costs + Markups) + Net Profit = Pricing

Pricing in Aspire is driven by the Multiple Overhead Recovery System (MORS). MORS is based on the idea that prices charged for the services are based on cost plus appropriate markups and profit. Markups are intended to cover overhead.

In Aspire, there are five types of cost as represented by catalog item types:

  1. Labor,

  2. Material,

  3. rental equipment,

  4. subcontractor, and

  5. other.

Using the MORS approach, one seeks to determine appropriate markups for each item type so that the company recovers cost and covers overhead. They also establish appropriate profit levels.

💡Tip: The most important item types on which to focus when setting up the pricing model are labor and materials.

When Moving to Aspire

One of the benefits of moving to Aspire is understanding the job cost of your provided services and the net profit you would like to earn during a fiscal year. However, putting your companies current pricing into Aspire can be tricky for a couple of reasons.

  1. Margins vs. Markups: Aspire is on a cost + markup system, also known as Multiple Overhead Recovery System (MORS). If your company has targeted margin percentages for your estimates, it may take time at first to reconsider how this looks.

  2. Oftentimes, your company may know the cost of the item (whether it's labor, material, or other) and the price you are selling it to the customer for but not much in between.

Whatever the difference is between the cost of the item and the price you are selling it at is used for overhead expenses and, hopefully, net profit. Frequently, we see businesses combine both overheard and net profit in their markup.

However, Aspire's pricing logic can separate these. Overhead is 'sprinkled in' throughout the markups, usually labor and materials, while Net Profit is the added percentage AFTER all markups and costs have been calculated.

[(Labor Cost * Markup Percent) + Labor Cost + (Material Cost * Markup Percent) + Material Cost + (Subcontractor Cost * Markup Percent) + Subcontractor Cost + Other/ Rental Equipment cost] + Net Profit = Pricing

As your company looks to scale, bidding with overhead expenses and net profit in mind is key to unlocking the power of Aspire. 🔑

Understanding Your Overhead

When we talk about overhead, or your overhead expenses, we mean expenses that don't directly relate to the services you provide but still help keep your operations running.

This can include things like:

  • Your payroll software

  • Administrative staff

  • Work vehicles (not rental equipment)

Since Aspire is driven by MORS, you should calculate overhead expenses into your markups. One of the most simple ways is to calculate total administrative costs for a year and divide it by your predicted service hours.


Requirements

✅You must have System Admin access or

✅Branch Admin access with Enhanced Branch Security checked.

  • (To do this go to Administration ➡️ Configuration ➡️ Application)


Instructions

  1. Prior to creating an opportunity in Aspire, Pricing Mark-ups will need to be set. In order to do this, select your Profile Icon then Administration.

2. Select the Estimating tab then the Pricing Mark-Ups subsection.

3. If there are any pricing mark-ups entered in your system, you will see them listed here. To add a new Pricing Mark-up, select the blue New button in the top right.

4. A new line will appear at the top of the list with all percentages listed as 0.

5. Select the Branch where the Pricing will affect. If a Branch is not selected, then the Pricing will affect all Branches.

6. Select the Division where the Pricing will affect. Division pricing allows for differences between each division.

7. Select the Service Type that the Pricing will affect. Service Type pricing allows for differentiation within divisions by service types.

8. Enter in the percent markup for Labor, Material, Equipment, Sub and Other.

Example: If labor costs $12.00 an hour, then Aspire will calculate to $24.00 with a 100% markup. When entering in any number, Aspire will add a red triangle in the cell. This indicates that the pricing has not been set.

9. Enter in the percent Net Profit. This profit is added to the selected items (Labor, Material, Rental Equipment, Sub and Other) on the Estimate.

Example: If labor costs $12.00 an hour, then Aspire will calculate to $24 with a 100% markup. If your desired Net Profit is 10%, then Aspire adds a 10% Net Profit by dividing the $24.00 Markup Price by 0.9 (1-Net Profit %) to produce a Sales Price of 26.67.

10. When complete, select Save.

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