In this article, we'll explain the Markup Pricing strategy in SetSale. This model is designed for a fast, straightforward calculation of your job price by applying percentages to your direct costs. It's often favored by contractors for its simplicity.
How Markup Pricing Works
The Markup Pricing model calculates the customer's price by totaling all your job costs — direct costs (equipment and labor) and estimated overhead — and then adding a specific markup percentage on top of those direct costs to ensure profit.
1. Calculate Your Direct Costs
Direct Costs are expenses directly tied to the job.
Equipment Cost (EC): The cost of the HVAC unit, heat pump, etc.
Labor Cost (LC): The cost of installer labor for the job.
Direct Cost = Equipment Cost (EC) + Labor Cost (LC)
2. Estimate Your Overhead Cost
Overhead is an estimated cost for indirect expenses that keep your business running, such as office space, administrative staff, fuel for vehicles, and utilities.
In SetSale, the Overhead Cost is calculated as a best-effort percentage of your Direct Costs.
Overhead Cost: Direct Costs multiplied by your set Overhead Percentage (e.g., 20%).
3. Determine Your Markup
The Markup is the dollar amount you add to the job price to ensure you make a profit and grow your company. In the Markup Pricing model, this is calculated as a percentage of the Direct Costs.
Markup: Direct Costs multiplied by your set Markup Percentage (e.g., 60%).
4. Account for Fees and Commissions
Before presenting the price, the system must ensure the total revenue is enough to cover costs that are a percentage of the final price, which can create a circular calculation (if the total goes up, the fee goes up).
SetSale uses a specific formula to automatically and precisely account for costs like:
Sales Commissions
Financing Dealer Fees + Credit Card Fees
The calculated total, called the Pre-Discount Revenue, ensures all Direct Costs, Overhead, Markup, Commission, and Dealer Fees are fully covered.
Final Customer Price Calculation
After calculating the necessary Pre-Discount Revenue to cover all internal costs and profit targets, SetSale determines the final amount the customer pays:
Discount: If a discount is applied (e.g., 10% off), the discounted amount is subtracted from the Pre-Discount Revenue. This is taken as a hit to your overall margin.
Rebates: Rebates are deducted from the price the customer pays (e.g., utility rebates).
Tax: The sales tax (typically based on the equipment cost) is added to the total.
Cost Component | Calculation Basis | Key Takeaway |
Direct Cost | Equipment + Labor | Your core expense for the job. |
Overhead | % of Direct Cost | Your estimate for operating expenses. |
Markup | % of Direct Cost | Your intended profit amount. |
Net Margin | Result | The final, actual profit percentage you earn on the job, which is a result of all the costs and the markup percentage you chose. |
💡 Tip: Markup vs. Margin
A key feature of the Markup model is that your chosen Markup Percentage (e.g., 60%) is not your final profit margin. After factoring in overhead, commissions, and fees, the final Net Margin (your actual profit percentage) will be significantly lower.