Material Markups and Payment

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For those that work with industrial clients,When working up quotes for large jobs what percentage markup do you generally use for materials and parts?Is the markup used to offset handling, shipping, storage costs? Do you base material costs on current pricing or on actual costs if material was purchased previously and in stock?Do you add any percentage for clients that have 30, 60, 90. etc. payment schedules? Are these markup values given to client as somewhat an incentive to pay faster?Thanks in advance for any help.AlA man is judged by what's between his legs...always ride a good horseMiller DialArc HFLincoln Classic 300DThermal Arc 181iPowermax 45Scotchman Ironworker(2) BridgeportsOkomota Surface GrinderAutoCAD 2010
Reply:On big jobs it depends on who it is.For most of my big jobs I'll do 10% on all parts and material. Handling, shipping and storage are all billed to the client, at 10% markup as well. (I'll include a line in the proposal like "shipping, handling and storage to be payed by customer at cost plus 10%. cost not to exceed . . . ")For us though, we had a maintenance contract with a couple of the big gas distribution pipeline and other companies of that sort. Our maintenance contract was written for 10% markup, and we were asked by the management if we would do that markup on projects as well. One big thing in our contracts, we got payed after 15 days. If it went past 15 days, there was a percentage added on, over 30, another percent and so on. As far as current pricing or previous pricing, I priced based on what I payed for material, if my costs went up, their costs went up. This was always noted in any proposal sent over. Alot of people might thinks that's way to low for markup. I look at it as a way to reward clients who pay quickly. And those customers have kept us pretty busy over the years. It's a win win in my book. I did have one company that I always added a 5% "I have to work with ....." fee on top of all prices.
Reply:Originally Posted by Birdwell4I did have one company that I always added a 5% "I have to work with ....." fee on top of all prices.
Reply:It really depends on a lot of variables.  A lot of our welding is repair of big parts, so material is minimal.  A lot of it is customer provided, so no charge again.  Most of our customers buy large amounts of steel from the same vendors so they know what our prices are.  If you do your job right and have competent employees, you shouldn't need to charge extra for materials.  Parts can be a little trickier.  I consider bolts and hardware, gaskets, or anything ordered specifically for that job to be parts.  Normally, we just add on the total invoice into the bid.  Consumables like: grinding discs, flap wheels, filler material, gas, etc, are factored into the multiplier.We get free delivery on most things and are tax exempt.  There isn't any reason, other than storage, for us to mark it up.  Bid your jobs correctly on the hours.  Hit it by the multiplier, add your material and there is your quote.  In my (somewhat limited, I'm not that old) experience, the multiplier is where most people get into trouble.  If you're not making enough money, you shouldn't be jacking the material costs to cover it.  You need to figure out what the real problem is, ie: too many hours, job scope changing after contract, wrong equipment, mistakes, etc.Our terms are: >30 days 0%, 30-60 days 15%, 60-90 days 30%.  If you're over 90 days, we've got a real problem and someone will be there to retrieve either our payment or parts.  It's not just as an incentive for people to pay sooner.  It's an interest rate.  That multi thousand dollar payment I haven't received is money I can't invest back intro my business.  I've already fronted the money out of my own pocket and haven't had it replaced yet.  Most customers are Net 30 and most are good for it.  A few years ago, before I got involved with the company, a larger customer got in a real bad spot and shut their doors.  They payed up their tab with us, but we called into their bankruptcy case and had to return almost $100k that we were "paid out of turn" because their were other people waiting a lot longer then 30 days for payment.  Ouch.  We now do credit checks of anyone wanting to go on terms with us.EDIT:  Additionally, you should be going back through your completed jobs to see how close you were on your bids.Last edited by jmtebbens; 12-31-2011 at 05:41 PM. Originally Posted by SundownIIIDon't get me wrong.  They are just as ill informed about politics as they are about welding, they just post more on that subject.
Reply:Thanks guys...all good information.I'm working on a proposal for a new client. Want to be fair but really don't want to leave money laying on the table either. The material and part orders will be quite a bit larger than we usually do so wanted to make sure we are in the right ballpark. The services we offer put us in a good position for the work available. Fortunately, past clients have been quick with the paychecks..generally less than 30. But I know sometimes the bigger they are the harder it is wrenching the pennies from their fingers. Again, thanks for offering information. It will help a lot as I get this sifted all out.And welcome to 2012...the year of prosperity (?).AlA man is judged by what's between his legs...always ride a good horseMiller DialArc HFLincoln Classic 300DThermal Arc 181iPowermax 45Scotchman Ironworker(2) BridgeportsOkomota Surface GrinderAutoCAD 2010
Reply:Originally Posted by SmokinPRanch But I know sometimes the bigger they are the harder it is wrenching the pennies from their fingers.
Reply:For the past couple years I have been cash on the barrel head, but with work picking up I am invoicing again. For most large customers and the ones with the "pay when they want" book keepers, they get a 20% charge on materials/parts as well as a miscellaneous charge for B.S. stuff that is hard to bill out for. I am also taking credit cards to further speed up me getting paid, I would rather pay the 2% to the cc company than wait till who knows when for a check.Disclaimer; "I am just an a$$hole welder, don't take it personally ."
Reply:I did a couple jobs for a new customer.  I brought the last job back (delivered) on my truck.   I asked for a check, they said   "Can I sign for it?"  I said no.  They gave me a check.     More and More.I'm not a back.  I have seen too many get stiffed by "big companies".  I have some that pay net 30.  Its OK as long as I know it.  I mark my steel up a little depending on the job.   A few wheels, fine as long as I made  a few bucks.  One job we used  30 wheels in 2 hours.  Customer paid for those.   If I use 100 lbs of filler, sure they pay or supply it.DavidReal world weldin.  When I grow up I want to be a tig weldor.
Reply:I don't supply materials anymore  I will source them for the customer  if they wont Handel the materials what's the chance you will get paid for your time I was burnt bad 10 years ago buy 2 large company's for around 50Gs they went under before I could collect cost me 21G had to pay the metal supply was a very bad year never again I'm the Weldor not the Bank of WELDINGAnother day in paradise You only have to be smarter than the metal".   WeldiniMaking an honest living is nothing more than stealing from someone who can afford it and everyone feels good when it's over .      Weldini
Reply:Has anyone used the Square phone app?https://squareup.com/Do what it takes to get the job done right.
Reply:I do get into detail when I figure up a quote..both out of fairness for me and the client. Charge fair hourly rate...not the most expensive but by far not the cheapest. That can vary as to client also.I haven't normally marked up materials but I'm thinking it might be a better way to go rather than try to figure any pick up, handling charges and all. Guess I'll have to run some numbers and see what works out the best and easiest.I definitely don't like carrying clients material bills. But seems the bigger ones want to pay one lump sum when things are all done. I can understand 30 days (almost) due to corporate structures. After that makes me sweat. Was thinking of adding a line to quote...0% 0-30 days, 2% 31-60, 4$ 61-90. After 90 my crazy cousin Tommy comes to see you. (Maybe should leave that last part out?) Just wasn't sure how they would react to that payment schedule.Once I get an idea an idea of their practices I'll just lump it all in to cover their habits...good or bad.Here's to hoping everyone gets paid fully, quickly and darned well in 2012.AlA man is judged by what's between his legs...always ride a good horseMiller DialArc HFLincoln Classic 300DThermal Arc 181iPowermax 45Scotchman Ironworker(2) BridgeportsOkomota Surface GrinderAutoCAD 2010
Reply:We charge base rates for actual welding and markup on material based on what our market will support.  We don't charge for pick-up or delivery of material.  That is a "cost-to-doing-business" and should be covered by our normal mark-up for general and administrative costs.  When the customer wants to supply there own material we just charge our normal welding rates.We primarily accept credit cards and will pre-authorize the full payment prior to any job commencing - for "walk-in" business.  We secure the entire balance when the project is complete and signed off.  We do not offer anything but a paper quote until payment has been secured first.  It's just a smart way of doing business and any other process would be illogical.For larger firms, we conduct business the same as above unless the total value of each project work exceeds $1,000.  For these special customers will offer "net 10 business days".We currently conduct retail and B2B business.  We make more profit from retail business than from B2B business.  Although, the B2B business is generally larger in scale we make less and getting paid is more difficult.When we used to offer "net 30" terms our customers would use it as a tool to negotiate lower prices.  For example.."we can pay you today with a 10% discount".   Therefore, we don't accept early payment discounts any longer.  Now we secure payment within 10 business days which is the full amount.In the end you will need to develop a payment strategy that works for you and your customers.FabTech Metalworks10100 Belknap Road Ste. A3Sugar Land, Texas 77498-1140Office: (832) 510-WELDToll-free/Fax: (800) 270-4316www.fabtechmetalworks.com
Reply:Originally Posted by SmokinPRanchI do get into detail when I figure up a quote..both out of fairness for me and the client.
Reply:Originally Posted by jmtebbensI'm curious, do you break down your quote to your customers?  We do a lot more of machining than welding.  Normally our quotes are fairly straight forward and just specify the work and a total price.  We don't break down the quote unless the customer has a specific accounting reason that they need it.  The machining world is all about tricks and figuring out faster ways to do things.  I don't need everyone seeing how many hours it takes us to do something vs our competitors.
Reply:Originally Posted by TozziWeldingI am also taking credit cards to further speed up me getting paid, I would rather pay the 2% to the cc company than wait till who knows when for a check.
Reply:I have been considering CC's heavily.  Walk-Ins generally account for ~5%, so they are not a big concern to us.  I, however, have had several customers asking if we accept AMEX lately.  I think this may be something that would have to get added into the bill someway.  AMEX has some outrageously high (in my mind anyway) fees. Originally Posted by SundownIIIDon't get me wrong.  They are just as ill informed about politics as they are about welding, they just post more on that subject.
Reply:I'm going to also look into the credit card option. Hasn't really been an issue before but can see where it might be like an added service for some clients. And maybe even a protection for us (?)Pretty amazing the amount of knowledge and experience here on this board. Great information.AlA man is judged by what's between his legs...always ride a good horseMiller DialArc HFLincoln Classic 300DThermal Arc 181iPowermax 45Scotchman Ironworker(2) BridgeportsOkomota Surface GrinderAutoCAD 2010
Reply:I just had a thread on credit cards, in the off topic section. http://weldingweb.com/vbb/showthread.php?t=63595I went with Square, and my first three transactions worked out great. They have just one fee of 2.75%, even on AMEX. I just downloaded the app, went thru the sign up, and the payments are directed to my business checking accounts. I am very satisfied, so far."Where's Stick man????????" - 7A749"SHHHHHH!! I sent him over to snag that MIC-4 while tbone wasn't looking!" - duaneb55"I have bought a few of Tbone's things unlike Stick-Man who helps himself" - TozziWelding"Stick-man"
Reply:Originally Posted by dkalleckHas anyone used the Square phone app?https://squareup.com/