Even for professional electricians and business owners, the process of setting markups correctly to hit desired gross and net profit margins can be difficult to fully understand and execute.
And yet, if you don’t come to deeply understand your markups and how to get them right, you’ll be hard pressed to maintain profitability and keep your business running.
So, in this article, we’re going to walk through some key concepts and advice — based on firsthand experiences from industry experts at ServiceTitan — that can help electrical contractors ensure they set their markups wisely and price their services for profitability.
In addition, we’ll also share some of the ways in which ServiceTitan’s electrical software helps contractors streamline important aspects of estimating and electrical project management such as maintaining accurate material and equipment costs, monitoring job costs, managing purchases, doing progress billing, and more.
Below, we cover:
Note: ServiceTitan protects your bottom line by giving you the tools you need to stay on top of the fluctuating prices of materials and equipment. If you’d like to find out more about how ServiceTitan’s all-in-one electrical contractor software can help you streamline pricebook management and grow your electrical business, book a free demo.
Electrical Markups vs. Profit Margins: What’s the Difference?
In the electrical industry, as well as the HVAC and plumbing industries, it’s not uncommon for business owners to mistake markups and profit margins for meaning the same thing. When this happens, businesses suffer.
So, before we get to the markup multipliers that we recommend electrical businesses use, we need to first make the distinction between markups and margins.
Contractor markup — expressed as a percentage or “multiplier” (e.g. 3X) — is the amount that’s added to the cost of a product or service to ensure that the selling price will meet your desired gross profit margin.
For instance, if you purchase a 4-pack of electrical outlets from Home Depot for $60 and want to sell it for $120, your markup percentage is 100% or 2X. The calculation would look like this:
($120 selling price - $60 cost) / $60 cost = 100% markup
In other words, you've doubled — or added 100% of the cost of materials — to the price of the part.
Margin, specifically gross margin, is the difference between the selling price and the cost of a product or service, expressed as a percentage of the selling price.
Using the same example, if you purchase the electrical outlets for $60 and sell it for $120, your gross profit margin is 50%. The calculation would look like this:
($120 selling price - $60 cost) / $120 selling price = 50% gross profit margin
How Much Should an Electrician Mark up Materials?
In general, the industry standard material markup for electrical contractors is somewhere between 2X and 6X what you paid for the item.
The multiplier you use will depend on your electrical company’s profit goals, as well as other factors such as labor costs and what businesses or homeowners in your market can handle. You generally want to shoot for a gross profit margin of 65–67% across your electrical services.
Contrary to some of the advice that’s been shared online, it’s important to apply the same markup multiplier across all of your parts and materials. If you use a higher markup for smaller jobs, for example, you’ll end up with inconsistent gross margins which can become a headache for your accountants and your business.
Equally important to correctly marking up your parts and materials is to determine your billable labor rate. Check out chapter 5 of our contractor playbook for detailed instructions on how to calculate your hourly rate to cover overhead costs, break-even rate per sold hour, as well as billable labor rate that accounts for profitability.
Combined with your materials and equipment markups, your billable rate for profitability will allow you to calculate the retail prices of your services (whether you use time and materials or flat-rate pricing).
How ServiceTitan Helps Streamline Electrical Markups, Estimating, and Project Management
Getting your markup multiplier right is only useful if you have up-to-date material pricing from your suppliers, but many electrical contracting businesses lack a good process for this.
With ServiceTitan’s electrical pricebook — which integrates directly with top industry supplier catalogs for HVAC, plumbing, and electrical — every line item that’s added to an estimate automatically reflects the most up-to-date pricing from the supplier. Thus, there’s less room for error when calculating pricing for your materials and subsequently your final bid on a job (and much less work involved in managing and updating your pricebook).
To demonstrate how ServiceTitan’s electrical software can support contractors in estimating and project management, we’ll walk through some of our construction management features that have been designed specifically for HVAC, plumbing, and electrical contractors.
The Project Overview Page
The first step to building an electrical estimate in ServiceTitan is to create a new project, which will generate a project overview page.
This page allows you to:
Enter all of the basic project information (project name, contact information, customer phone number, etc.).
View at-a-glance project job costing and expense details that update automatically throughout the course of a project.
Initiate key project actions such as generating a new purchase order, application for payment, invoice, and more.
The data displayed in the project summary and expense tables are all based on the estimate you create at the beginning of the job. So let’s look at how that works first.
Create Accurate Estimates
Once all the necessary information has been reviewed and collected, users can click “Build Estimate” from the project overview page to begin this process.
The estimate page allows you to begin adding all of the specific tasks, equipment, and materials that will be needed to do the work. Users have the option to draw from pre-built job estimate templates or build estimates from scratch.
So, for example, if you have a standardized quote template for a commercial electrical installation, you can use that as a base and then adjust the fine details accordingly to save you some time during estimate creation.
Tasks, materials, and equipment can all be tagged with color-coded project labels to organize the project details and make everything easy to visualize.
Once an estimate is complete, it can be printed, emailed, or exported in PDF format and sent to the client.
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Initiate Requisition and Purchase Orders within Your Estimate
When the estimate is sold, all of the details you’ve set up in the estimate are automatically integrated into the rest of the project management workflow. For example, you can initiate a requisition of equipment and materials right from within your sold estimate.
You simply click “Initiate Requisition” in the top right corner of your estimate, and then select the equipment and materials you want to order.
For example, at the beginning of a project, let’s say you want to start the process of ordering your permits and materials for your electrical work, you can select those items right from your estimate which will lead you through a workflow to create the purchase orders you’ll need.
In the purchase order workflow, the line items are automatically populated from your estimate. And you can simply select your vendors and shipping locations (i.e. job site, warehouse, etc.) for each material to complete your order details.
Then, you can save that order to create a transaction, and send those purchase orders to your vendors — without ever leaving ServiceTitan.
Automate Project Tracking and Job Costing
As you move throughout the course of a job — creating purchase orders, logging labor hours, processing change orders, receiving progress payments, and so on — your project summary and expense tables make automatic calculations that take all of your project’s progress into account.
So, instead of constantly updating a series of spreadsheets every time labor costs and material costs are incurred, this is done automatically, based on work that’s completed and entered into the system.
If we continue with our example from above, and you’ve made your initial purchase order of permits and electrical materials, your project summary table is updated to reflect those expenses:
Furthermore, you can view a more detailed break-out of your actual costs versus your budgeted direct costs:
This will automatically update as you accumulate expenses from materials, equipment, and labor hours. And it will display your margins in dollar and percent form to help you track your job costing and profitability throughout the course of your project.
You can also access a table breaking down your expenses in further detail:
You can click into any line item and see the exact source of that expense (e.g. which technician logged those hours, or which purchase orders and vendors a given set of materials came from). This allows you to easily check your numbers and feel confident in the sources of your data.
When it comes time for sending applications for payment and invoices at each stage of progress billing, this can also be easily accomplished from the project tracking page menu:
Easily Create Applications for Payment and Invoices
The initial estimate you created also informs and populates your continuation sheet in your application for payment:
No more reinventing the wheel for every asset that needs to be created throughout your project. When you want to send a payment application, you can easily generate one by selecting the billing period and the percent of each line item you want to bill for.
Then, you can generate a PDF payment application with the details automatically filled out, and send it off to your client for review. The detail of the continuation sheet makes for a bill that’s much easier to defend in the event of pushback from construction companies or general contractors. As a result, subcontractors are able to get paid faster and avoid cash flow issues.
When applications are accepted, it’s just as easy to generate and invoice for that progress payment. And when payments come in, you can update your accounts receivable through our QuickBooks or Intacct accounting integrations.
Get a Personalized Demo of ServiceTitan Electrical Software
If you’re interested in learning more about how ServiceTitan can help you manage and grow profitability in your electrical service company, schedule a free call to see a personalized demo of the features and functionality we’ve discussed throughout this post.
ServiceTitan Electrical Software
ServiceTitan is a comprehensive electrical business software solution built specifically to help service companies streamline their operations, boost revenue, and achieve growth. Our award-winning, cloud-based platform is trusted by more than 100,000+ contractors across the country.