Joe is planning for his next business year. He is committed to achieving a net profit of $25,000. He's planning to sell and produce a volume of $300,000 and his overhead runs $65,000. This leaves $210,000 for job costs. Let's explore the different ways that Joe could develop a sales price for the jobs he sells.

1. Across-the-Board Markup
With this method, every dollar of Joe's job cost ($210,000) earns the same amount of gross profit. This is the most widely used pricing system in the industry -- simple, easy for planning but not flexible.

Joe needs $90,000 in gross profit.
He uses a 1.43 or 43% markup on all job costs to help him achieve this goal. $210,000 x 1.43 = $300,300
$300,300 - 210,000 = $ 90,300 in gross profit dollars
To determine the markup you need, simply divide the gross profit dollars by the job cost dollars. $90,000 ) 210,000 =42.8%.
This equates to a 43% or 1.43 across the board markup.

2. Differential Markup
Labor, material and subs are each marked up with a different percentage.
Usually labor is very heavily burdened with gross profit.
$65,000 Labor X 100% or 2.0 mark up = $130,000
$17,000 Subs X 30% or 1.3 mark up = $93,000
$70,000 Materials X 10% or 1.1 mark up = $77,000
TOTAL $300,000
This system will allow Joe to earn more gross profit on heavy
labor jobs and less on light labor jobs.

3. Labor-based Markup
Joe has three carpenter employees. Each works 2000 labor hours per year.
This is a total of 6000 labor hours each year. Within this time, Joe has to earn $90,000 in gross profit. Each hour of labor must be marked up to carry $15 of overhead. (6000 hours x $15 = $90,000) For example, if Joe expects a job to take 160 hours to complete a job that has job costs of $10,000, he would charge the client a minimum of $12,400. (160 x $15 = $2,400)

4. Schedule-based Markup
Joe's company has 250 working days in the year in which to generate $90,000 of gross profit. Therefore, each working day must produce $360 in gross profit (250 x $360 = $90,000)
Joe runs one job at a time. The Harris job will take 4 weeks or 20 working days. (20 x $360 = $7200). This amount, $7,200 will be added to the job costs for a minimum mark up. For example, if the Harris job will cost $10,000, the sales price would be $17,200.00

5. Flexible Markup Based on Conditions and Type of Job
Choose your markup. Make sure it can be monitored at least monthly.