Markup vs Gross Margin

As business owners, you have the flexibility to determine – and change – your gross margin (the difference between your cost and your resale price). Depending on other competitors, rush charges, time of year, etc. your margins might fluctuate slightly. But clients often ask, “where should I be?” You want to remain competitive but not leave money on the table.

The answer to this question, you need to track 1) your markup percentage (the amount of your markup divided by your cost) and 2) your landing percentage (how many of your quoted projects are you landing).

 

Step 1: Tracking your markup percentage.

For example,

Your wholesale sign cost is $1000

Your sell it for $2000

Gross Profit Margin = Sales Price – Unit Cost = $2000 – $1000 = $1000

Markup Percentage = (Gross Profit Margin/Unit Cost) *100  = (1000/1000)*100 = 100%

Plus, of course you will need to add installation and permit fees.

TRACK YOUR MARKUP PERCENTAGES. While it’s hard to compare dollar figures among small projects and large projects, you can always track the markup percentage across all your jobs.

 

Step 2: Track your landing percentage

The industry standard for landing percentages is between 25% and 40% of your channel letter projects. Track how many projects you quote per month, and how many you land, to determine if you fall in this range. If you are high, you may be giving away the farm, and if too low, there is opportunity to see why you are not getting the jobs you should.

Of huge importance, when discussing margins, we need to also step away from the mathematic equations for a bit, as price should not be the only factor that sets you apart from your competitors. If customers measure you strictly on price, you will never be able to increase your margins and expand your profits.

Companies who offer best-in-class service, and consistently delight and deliver to their clients, can inch up the margins because of the value they offer. To establish value, make sure:

  • Your team is easy to work with, competent and reliable
  • You deliver fast service
  • Your quality is better
  • Your warranty is longer
  • Your team is able to counsel on sign types, configuration and placement

By being the best in town, not the cheapest, you will attract and keep loyal customers and referrals. So, track your numbers!

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