Understanding SetSale's Gross Margin Pricing Model
Set a target profit percentage upfront to ensure consistent, predictable margins on every HVAC job instead of hoping your markup delivers the profit you need
Understanding SetSale's Gross Margin Pricing Model
This article explains the Gross Margin Pricing strategy in SetSale — the recommended model for hitting a consistent, targeted profit on every job.
Gross Margin Pricing is more precise than Markup Pricing because you set your desired profit percentage upfront.
How Gross Margin Pricing Works
SetSale starts with your total costs (Direct Costs and Overhead), then solves for the revenue needed to hit your Target Gross Margin exactly.
1. Calculate your base costs
Base Costs are every cost on the job that isn't profit margin:
- Direct Cost (EC + LC): Equipment Cost plus Labor Cost.
- Overhead Cost: A percentage of your Direct Costs, calculated the same way as in the Markup model.
2. Set your Target Gross Margin
You choose the exact profit percentage you want to earn on the job (for example, 40%). This is your Target Gross Margin.
In the Markup model, profit is a result you find out after the fact. Here, it's the primary input.
3. Solve for the required revenue
SetSale calculates the exact Pre-Discount Revenue needed to cover all costs and hit your Target Gross Margin.
The formula accounts for your Target Gross Margin, Commissions, and Dealer Fees at the same time, so the result stays 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 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. Calculate the final customer price
Starting from the Pre-Discount Revenue, SetSale applies the following to reach the final customer price:
- Discounts: Any discount slightly reduces your final Net Margin, since commission is paid on the discounted price.
- Rebates: 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 varies job to job. | 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. |