Even for veteran professional plumbers 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 plumbing business owners ensure they choose their markups wisely and price their services for profitability.
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 plumbing contractor software can help you streamline pricebook management and grow your plumbing business, book a free demo here.
Plumbing Markups vs. Profit Margins: What’s the Difference?
In the plumbing industry, as well as the HVAC and electrical 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 plumbing businesses use, we need to first make the distinction between markups and margins.
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 faucet aerator for $10 and want to sell it for $20, your markup percentage is 100% or 2X. The calculation would look like this:
($20 selling price - $10 cost) / $10 cost = 100% markup (i.e. 2X)
In other words, you've doubled — or added 100% of the cost — 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 a faucet aerator for $10 and sell it for $20, your gross profit margin is 50%. The calculation would look like this:
($20 selling price - $10 cost) / $20 selling price = 50% gross profit margin
What Is a Standard or Reasonable Markup for Plumbing Materials?
In general, the best-practice markup for plumbing parts and materials is somewhere between 3X and 6X what you paid for the item. The multiplier you use will depend on your plumbing 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 60-62% across your plumbing 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 different multipliers based on price ranges of material costs, 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).
Key Challenges Involved in Pricebook Management and Implementation
Once you’re clear on your target gross margins, markups, and billable rate — i.e. you’ve priced your services for profitability — there are some key operational challenges to solve:
Having processes to ensure your pricebook or pricing spreadsheets are consistently maintained
Ensuring that plumbing techs always have access to the most up-to-date pricing when they’re in the field
Ensuring the correct prices are applied to every estimate across all services
Tracking and following up on open estimates to minimize lost revenue opportunities
Accurate pricing will only take you so far. If you don’t have the tools to effectively manage and implement that pricing, you’ll be hard pressed to meet your profit goals.
So, in the rest of this post, we’ll walk through some of the ServiceTitan features that help solve these challenges for plumbing business owners.
How ServiceTitan Streamlines Pricebook Management and the Implementation of Plumbing Pricing
ServiceTitan users can set up their pricebook using one of three basic approaches:
Plumbing contractors can upload a pricebook that they’re already using. For example, if you currently use a pricing spreadsheet to manage your pricing, you could upload and use that pricing as a starting point within ServiceTitan.
Alternatively, users are able to create a brand new pricebook from the ground up. Our interface makes it easy to do, and for small businesses, this can be a practical option.
Finally, plumbing contractors can opt for ServiceTitan’s Pricebook Pro catalog. Pricebook Pro is an upgrade product that offers a pre-built, continually managed flat-rate pricebook (more on this below).
Organize Pricebooks for Easy Navigation
Plumbing business owners can organize their pricebook into categories to make locating items and services as easy and efficient as possible.
To save time — and avoid sifting through long lists and catalogs — many of our users arrange their pricebooks by business units and verticals, as shown in the screenshot below.
For example, if they offer electrical or HVAC services in addition to plumbing services, they can create separate categories for their electrical flat rate and HVAC flat rate pricebooks. Or they can categorize pricebooks by residential, commercial, and construction, depending on the business divisions they serve.
Keep Prices Up to Date with Pricebook Editing and Automation Features
To ensure that plumbing businesses are pricing their services accurately and profitably, they must account for fluctuations in the costs of equipment and materials. So it’s vital to track those changes diligently.
To streamline this process, ServiceTitan’s plumbing pricing app provides an interface that allows contractors and their employees to edit prices and specs on multiple pricebook items simultaneously.
Specifically, our built-in pricebook features allow for:
Individual pricebook item editing: The ability to edit any pricebook item or plumbing service as needed, any time, with just a few clicks.
Bulk editing: The ability to make edits and markups to groups of services, packages, equipment, and/or materials. With a few clicks, changes can even be applied across an entire pricebook.
Dynamic pricing automations: The ability to set up rules to auto-update pricing according to customized parameters, such as when certain overhead costs change (e.g. labor rates, materials, etc.).
Pricebook Connect: With Pricebook Connect, you’ll have direct, cloud-based access to materials and equipment from top industry-supplier catalogs, with automated updates of item descriptions, product images, and pricing as manufacturers make changes.
Combined, this suite of features makes pricebook management seamless, reduces the time your team needs to spend on manual updates, and ensures that your prices reflect evolving costs — all while protecting the profitability of your business.
Furthermore, as soon as any updates in your pricebook are made, they’re reflected in real-time on any new quotes that are created in ServiceTitan, whether from the office or the field.
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Leverage Pricebook Pro for Even More Streamlined Pricebook Management
While the features we’ve described so far give plumbing businesses significant efficiency improvements in pricebook management, businesses still need to make continuous decisions about which flat-rate services to offer, what to include in service packages, and how to set their flat-rate pricing to hit target profit margins. They also need to continuously monitor pricing updates from vendors and periodically implement those changes.
To take this onus off of plumbing business owners — and free up staff to spend more time focusing on providing great customer experiences or marketing activities that help grow the business — we offer our Pricebook Pro add-on feature.
Drawing on decades of experience from industry veterans, Pricebook Pro further streamlines pricebook management in three ways:
Giving you a well-built plumbing pricebook from the outset, based on industry average prices and best practices, saving you hours of pricebook setup time. (You can add your own items and make adjustments to this base pricebook, as your business requires.)
Keeping on top of price updates. Our team monitors changes in supplier pricing on your behalf and updates prices on a monthly basis.
Providing a comprehensive range of pre-designed flat-rate services based on plumbing industry best practices and trends, which keep track of updated prices.
In combination, Pricebook Pro features help ensure that users are able to offer their customers cutting-edge plumbing services and products at prices that align with their profitability goals, all while saving plumbing companies innumerable hours on pricebook creation and maintenance.
It also gives subscribers a host of extras that can be leveraged to increase close rates and average ticket prices: product images and upgrades, recommendations, detailed item descriptions, and more.
Techs can draw on these and other resources while they’re on site to educate customers and give them confidence in their purchase decisions.
A recent survey of service businesses using Pricebook Pro found that this ServiceTitan add-on boosted their revenue by an average of 13% year-over-year.
Connecting Your Pricebook to the Rest of Your Business: Creating Good-Better-Best Proposals, Work Orders, and More
Whether you’re using our base pricebook features or our Pricebook Pro add-on, all ServiceTitan users benefit from a seamless connection between their pricebook and the rest of their business operations — beginning with the creation of estimates and proposals.
With ServiceTitan, business owners, managers, office staff, and field service technicians can easily create Good-Better-Best proposals based on the services and prices defined in their pricebook.
Leveraging our mobile app, which runs flawlessly on both Android and iOS (iPhone and iPad) mobile devices, techs can build estimates and proposals right from the field. They can build estimates from scratch by selecting items from your pricebook, or leverage and customize estimate templates for common recurring services.
The ability to provide extensive product details and high-quality images supplies techs with everything they need to explain services, packages, and products to customers, whether they’re selling a water heater replacement or performing a simple repair job.
After a business or homeowner has made their selection, techs can then create work orders, offer financing, generate invoices, collect payments, and more — all of which are directly informed by the contents of their pricebook. And these are simply our mobile features.
The same functions are also available via desktop for office staff, including many others such as:
All of these critical features can help plumbing service contractors get ahead of the competition by streamlining their overall operations, integrating core business functions to drive revenue growth, improving efficiency, and increasing their bottom line.
Discover what ServiceTitan can do to streamline your operations, increase profitability, and improve customer experiences. Schedule a call to get a free, personalized demo of our all-in-one software solution today.
ServiceTitan Plumbing Software
ServiceTitan is a comprehensive plumbing 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.