This article explains the Gross Margin Pricing strategy in SetSale, the recommended model for achieving a consistent, targeted profit on every job. This model is more precise than Markup Pricing because you set your desired profit percentage upfront.
How Gross Margin Pricing Works
The Gross Margin Pricing model calculates the customer's price by starting with your total costs (Direct Costs and Overhead) and then solving for the revenue amount that ensures your desired Target Gross Margin percentage is hit exactly.
1. Calculate Your Base Costs
Base Costs are all the costs that are not the profit margin.
Direct Cost (EC + LC): Equipment Cost plus Labor Cost.
Overhead Cost: Calculated as a percentage of your Direct Costs, just like in the Markup model.
2. Determine Your Target Gross Margin
In this model, you specify the exact profit percentage you want to earn on the job (e.g., 40%). This is your Target Gross Margin.
Unlike the Markup model where your profit is an uncertain result, here it is the primary input.
3. Solve for the Required Revenue
SetSale uses a simple, powerful formula to calculate the exact Pre-Discount Revenue required to cover all costs and hit your Target Gross Margin.
The formula accounts for the Target Gross Margin, Commissions, and Dealer Fees simultaneously, ensuring the calculation is always accurate.
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. |
Target Gross Margin | Input/Target | The precise percentage (e.g., 40%) you want to earn as profit. |
Gross Margin | % of Pre-Discount Revenue | The dollar amount required to hit your target profit. |
4. Final Customer Price Calculation
From the Pre-Discount Revenue, any additional discounts are applied to calculate the final customer price.
Discount: If a discount is applied, it will slightly reduce your final Net Margin, as the commission is paid on the discounted price.
Rebates: Rebates are deducted from the customer's price.
Tax: Sales tax is added.
Why Choose Gross Margin Pricing?
Feature | Markup Pricing | Gross Margin Pricing |
Primary Input | Markup Percentage (e.g., 60%) | Target Gross Margin Percentage (e.g., 40%) |
Profit Precision | Low. Final margin is an estimate and often inconsistent across jobs. | High. Final margin is a precise target you choose. |
Calculation | Overhead and Markup are calculated on Direct Costs. | Total Base Costs are used to solve for a single final revenue number. |
Best For | Simplicity and best-effort pricing. | Precision, profitability, and consistency on every job. |
💡 Tip: Discounting and Margin
In the Gross Margin model, if you set a target of 40% but a technician applies a 5% discount, your final Net Margin will drop slightly below 40%. The system shows this new margin in real-time, helping technicians understand the financial impact of discounting.